Selecting A Portfolio
All investments have risks.
At PMA, we try to educate clients about both the potential upside and downside of their investments.
While people are naturally inclined to focus on the possible gain, understanding and limiting the potential loss is the much more important exercise.
PMA portfolio risk characteristics take into account that the potential for gain and loss increases as the equity percentage increases, as does the expected annual outcome. This means that returns will also have greater variability from period to period.
Averaged out over time, the variability of returns decreases. In other words, the longer the time horizon, the less extreme your best- and worst-case outcomes will be. From a practical standpoint, this means that investors with a longer time horizon can probably tolerate greater risk.
The question that every investor must ask himself, however, is “what would be the impact on me in the event of the worst-case outcome of my investment.” When the answer is, “I hope it doesn’t happen, but I could live with it,” that is probably the correct risk portfolio for you.