Risk & Allocation
What a bond allocation is actually for
Bonds are held to change how a portfolio behaves in a bad year, not to maximise return.
Bethan Rees
Contributing writer, The Investment Habit
Bethan writes about drawdown and turning a portfolio back into an income.
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16 articles
Behaviour
Overconfidence is quietest when it is most expensive
The investors most certain they can judge a market are rarely the ones who have checked their own record.
Behaviour
Your calm self cannot predict your panicking self
Asked in a quiet moment how you would react to a crash, you will answer as the person who is not experiencing one.
Behaviour
Why the same money gets treated differently
A windfall, a salary and an inheritance are identical amounts that people invest, spend and protect in completely different ways.
Behaviour
Hindsight makes every crash look obvious
After the event, the warning signs are clear, the commentary is unanimous and everyone remembers having been concerned. Almost none…
Risk & Allocation
Risk tolerance is discovered, not declared
What you say about risk is a prediction. What you did in the last fall is evidence. Only one of them is worth much.
Risk & Allocation
Risk you can measure and risk you can only imagine
Some risks come with numbers attached. The ones that have historically caused the most damage did not.
Risk & Allocation
Stated risk appetite rises with the market
The same investor will describe themselves as adventurous after two good years and cautious after a bad one, with no change in…
Risk & Allocation
Your job is already a holding in your portfolio
Your income, your employer shares and your pension can all depend on the same company or the same industry. That is a concentrated…
Risk & Allocation
Asking how much risk the goal actually requires
If a goal can be reached with less risk, taking more adds uncertainty without adding necessity. Almost nobody asks this question.
Risk & Allocation
The largest risk is a plan you abandon
Portfolio risk is analysed in detail. The risk that you will stop following the plan is rarely mentioned and does the most damage.
Risk & Allocation
Most people mean five years when they say long term
The phrase does a great deal of work in investment writing and almost nobody defines it. The definition changes what is sensible to…
Behaviour
A witness makes a plan harder to abandon
Telling one person what you intend to do changes the cost of quietly not doing it. That is the whole mechanism, and it works.
Risk & Allocation
The arithmetic of getting back to where you were
A fall and the gain needed to reverse it are not the same size. The gap widens fast, and it explains why large losses matter…
Risk & Allocation
Nobody receives the average return
Long-run average figures describe a smooth line no investor has ever experienced. What you get depends on the order the years…
Risk & Allocation
Capacity for loss is arithmetic; tolerance is a feeling
How much risk you can take and how much you want to take are different questions. Only one of them has an answer you can calculate.