What Is Risk: Part II

What is Risk: Part I was written in October 1989 and discuss two categories of risk:  the risk of volatility and the risk of losing money.  In October 1993, one of Ron’s largest clients (a pension fund) was being told by a stock brokerage firm to increase its investment allocation to bonds, since bonds were “guaranteed” and the returns for the prior 10 years had been nearly as good as the average for stocks. Ron didn’t think the prior 10 years was the appropriate time to consider. In this essay he looks back to 1952 to examine the long-term performance of stocks and bonds. In doing so, he illustrates why the brokerage firm’s advice to invest in more bonds was misguided.

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