Most investors think about risk in terms of market volatility. But is volatility really the risk that matters most?
In investing, risk has many faces—from permanent loss of capital and liquidity constraints to withdrawal risk, behavioral mistakes, and the possibility of falling short of important financial goals. Volatility is simply one way of measuring uncertainty; it is not necessarily the same as the risk of losing wealth permanently.
My belief is that investors should look beyond the traditional risk-and-return framework and consider the different risks that can affect their financial security. More importantly, I explain how we approach risk management at Dorchester Advisors: starting with your time horizon and financial goals, determining the return your portfolio needs to achieve those goals, and then building a strategy designed to manage unnecessary risk rather than simply pursue the highest possible return.
Key takeaways include:
• Why volatility and investment risk are not the same thing
• The different forms of risk that can affect long-term wealth
• Why goal-achievement and withdrawal risk matter especially in retirement
• How investor behavior can undermine an otherwise sound investment strategy
• Why a more comprehensive approach to risk can lead to better investment decisions
Read the PDF to explore the many dimensions of investment risk—and why understanding them can be just as important as understanding potential returns.