How much risk are you willing to accept for a given level of potential return on a portfolio of assets, like stocks, bonds and cash? The mix or allocation of stocks and bonds in a portfolio is designed to create a specific risk-reward ratio that offers the opportunity to achieve a certain rate of return on your investments in exchange for your willingness to accept a certain amount of risk.
Risk is defined “as the exposure to loss or harm.” In investing terms, risk is about uncertainty and our ability to accurately predict stock price movement. Will a particular stock move up or down in line with the overall market? How volatile will the price movement be? How do we expect the price movement of one stock to correlate with another? We must first understand risk before we can deal with investment asset selection. Professional portfolio asset management will help you answer these what and why questions.
Simply ask yourself, "In these turbulent economic times, am I more interested in maximizing my portfolios expected return or is minimizing my level of risk more important?"