Risk

whatstheplan

HappyHarry said:

sevenhills said:

HappyHarry said:

Risk is a fascinating area. An individual's risk level is not possible to quantify exactly, despite there being many "risk questionnaires" that attempt to do so. At the same time, it is easy to quantify the risk, or volatility of an investment, through historical data.

Surely if a profit is likely more than 50% of the time, then the risk is a good one, but not everyone can afford a loss. There is no bookmaker making a handsome profit, just perhaps 0.5% by the platform.

The vast majority of index and managed funds have more than a 50% likelihood of profit over the long-term. That doesn't mean that a global index tracker and a 40/60 cautious managed fund are both ideal for everyone, despite their long-term positive expectations.

I've been thinking about this as someone new to the world of investing.  At 49 I've missed the boat of setting a portfolio up (e.g. global index tracker and bonds) when I was in my 20s then leaving it to run for 30+ years before cashing in my (almost guaranteed) profit.  Thank you, that'll do nicely.

However, whilst a relatively safe way to invest due to the length of time you're leaving the investment to run, it's also surely quite a boring way to invest?  You're still tied to your lifetime 9-5 if you elect to draw down nothing for maximum retirement profit.  I'm not saying it's wrong to invest that way, I wish I'd done it, however it surely ranks as one of the most boring (but safe, yes) investment routes.

I'm also going to assert what I said in another topic.  At 49 with the ambition to retire from my 9-5 asap, I'm surely almost duty bound to seek investment routes that are higher risk than the aforementioned routes as they simply won't give me the returns I desire quickly enough.  Hence my original topic when I joined about crypto.

As others have touched on, I have a degree of safety net through my workplace pension that give me a guaranteed lump sum and monthly pension when I hit 65.  I also have rentals although I'm far from raking it in with them, trust me.  However if I retain one of those that adds to my future income.  So, I suppose I fall into the bracket of someone that might be prepared to seek so-called higher risk investment strategies with a view to realising my goals.  Ultimately if it doesn't work, I keep on working until I'm 65.  That's my fallback I suppose, and not an entirely bad one on balance.

Thrugelmir

whatstheplan said:

HappyHarry said:

sevenhills said:

HappyHarry said:

Risk is a fascinating area. An individual's risk level is not possible to quantify exactly, despite there being many "risk questionnaires" that attempt to do so. At the same time, it is easy to quantify the risk, or volatility of an investment, through historical data.

Surely if a profit is likely more than 50% of the time, then the risk is a good one, but not everyone can afford a loss. There is no bookmaker making a handsome profit, just perhaps 0.5% by the platform.

The vast majority of index and managed funds have more than a 50% likelihood of profit over the long-term. That doesn't mean that a global index tracker and a 40/60 cautious managed fund are both ideal for everyone, despite their long-term positive expectations.

I've been thinking about this as someone new to the world of investing.  At 49 I've missed the boat of setting a portfolio up (e.g. global index tracker and bonds) when I was in my 20s then leaving it to run for 30+ years before cashing in my (almost guaranteed) profit.  Thank you, that'll do nicely.

Global index trackers are a more recent invention. You haven't missed the boat by as much as you might think. Popularity coincides with the rise in US growth stocks and money printing policies. 

HappyHarry

whatstheplan said:

However, whilst a relatively safe way to invest due to the length of time you're leaving the investment to run, it's also surely quite a boring way to invest?  You're still tied to your lifetime 9-5 if you elect to draw down nothing for maximum retirement profit.  I'm not saying it's wrong to invest that way, I wish I'd done it, however it surely ranks as one of the most boring (but safe, yes) investment routes.

Long-term investing is meant to be boring. Have you ever heard that investments are a great way to "get rich slowly"?

If it is excitement that you are after in life, look for other avenues.

If it is excitement that you are after in financial matters, then cryptocurrencies, foreign exchange, and day-trading are all frequently mentioned on these boards. However, for those without a few years of dedicated training, these are, in my opinion,  little more than gambling.

[Deleted User]

HappyHarry said:

Another poster above suggests that IFAs / FAs like risk conversations because it allows advisers to defend underperformance of investments. That is not true. Advisers compare the investment returns against an appropriate risk-rated benchmark. If the funds had underperformed, then the adviser should be able to justify why, and be able to explain what, if anything, should be done about it. 

I bow to Happyharry's much greater practical experience. Mine is limited to a couple of "risk profiles" undertaken for advice on a pension transfer:- the same evidence to be used as justification for opposite recommendations that suited the advisers' interest ( and pretty blatantly at that). So that may have coloured my  initial remark, but I don't think it can be wholly dismissed as untrue; because the process is generally more insidious:  what risk profiling does is fence-in its clients and, to some extent, promote a dependency on the industry to guard that fence. It infantilises advisers' clients. Which makes underperformance more acceptable.

Risk aversion is fear, risk appetite is greed.

 Aversion risk clients are lower maintenance. You don't miss what you never had. 
So "tolerance of a 50% correction" (fear) is a staple of risk profiling, whereas "opportunity cost" (greed)  is rarely quantified.

chiang_mai

whatstheplan said:

HappyHarry said:

sevenhills said:

HappyHarry said:

Risk is a fascinating area. An individual's risk level is not possible to quantify exactly, despite there being many "risk questionnaires" that attempt to do so. At the same time, it is easy to quantify the risk, or volatility of an investment, through historical data.

Surely if a profit is likely more than 50% of the time, then the risk is a good one, but not everyone can afford a loss. There is no bookmaker making a handsome profit, just perhaps 0.5% by the platform.

The vast majority of index and managed funds have more than a 50% likelihood of profit over the long-term. That doesn't mean that a global index tracker and a 40/60 cautious managed fund are both ideal for everyone, despite their long-term positive expectations.

I've been thinking about this as someone new to the world of investing.  At 49 I've missed the boat of setting a portfolio up (e.g. global index tracker and bonds) when I was in my 20s then leaving it to run for 30+ years before cashing in my (almost guaranteed) profit.  Thank you, that'll do nicely.

If it helps you at all.....I'm now 71 years old, I first took up investing in markets two years ago out of necessity. I was an expat and my onshore pension had stalled in the hands of a firm that was worse than hopeless, they didn't even know they were holding my pension and nobody was managing it. Fortunately, the funds within it were adequate to ensure it didn't lose value. I didn't need the pension but I did want it to grow so I can leave the pot to my better half. An experienced expat investor took me under his wing and taught me some of the basics and we set up the SIPP, since then I've seen it grow by over 30%. It helps that I don't need the money because my portfolio is very aggressive albeit I have tamed it down this year. So no, I don't agree that you've missed the boat but you may need to reconsider your risk profile.