There’s No Such Thing as a Cautious Portfolio Anymore
Risk-averse investors have few alternatives to holding cash as bond yields climb.
Merryn Somerset Webb is a senior columnist for Bloomberg Opinion, covering personal finance and investment, and host of the Merryn Talks Money podcast. Previously, she was editor in chief of MoneyWeek.
If you go to a financial adviser to chat about investments, here’s how your first meeting will probably go: They will ask you about your attitude to risk. How much money are you prepared to lose? What sort of loss would change your plans for the future? How soon might you need your money back? Then they’ll probably assign a number to it. One, if you are very scared of losing money (or close to retirement) to five, if you are pretty gung ho. Platforms will do much the same thing – dividing funds into categories such as “cautious,” “moderate” and “adventurous,” for example.
You could argue that the whole exercise is a bit silly. Most people think they’re happy to take risk to make better returns – until they actually lose money. Then they aren’t so sure that is what they really wanted. Still, there has to be some way of creating a base for portfolio construction, and this is it. Everyone gets a risk rating.
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There’s No Such Thing as a Cautious Portfolio Anymore