Do you believe investors should be compensated for the risks they take?
For decades investors have assumed higher risk investments produce higher rewards, and lower risk investments produce lower rewards. It sounds simple, seems plausible, looks fair, and carries the appeal of common sense. The trouble is that public markets don’t really work that way. In fact, market evidence proves the opposite to be true; it’s actually the lower risk stocks that have outperformed over time. Not only have they outperformed, but they have done so by a wide margin.
Here’s a great article summarizing “the volatility effect” that offers explanations as to how and why the tortoise beats the hare: http://www.researchaffiliates.com/Our%20Ideas/Insights/Fundamentals/Pages/212_True_Grit_The_Durable_Low_Volatility_Effect.aspx
This is great news for investors who don’t like risk, but also want a good return. Count me in!
Ben Kizemchuk is a Portfolio Manager & Investment Advisor with Altus Securities Inc. in Toronto. He offers financial planning and investment management for high net worth Canadian investors. Ben focuses on high quality investments, the Growth and Income Portfolios, low risk investing, and reducing tax.