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The risk of being too conservative

It’s counterintuitive to think that being conservative with your investments isn’t effectively protecting your assets and can pose an even greater risk to your financial plan over the long-run. A conservative portfolio is usually comprised of cash, CDs, US Treasury, and high-grade corporate bonds. An increasingly aggressive portfolio will depend on the amount of stocks added to the mix. The dilemma facing conservative investors is the choice between accepting the volatility that comes naturally with owning stocks and a slow moving portfolio that will suffer a loss of purchasing power as a result of the most important silent killer, inflation.

Fear drives investors decisions far more than reasonable analysis. Technical analysis is the art of predicting investors’ fears as they end up being profitable transactions for the counterparty. Knowing that there’s a well-practiced pseudo science utilized by many traders around the world should shed light on the fact that your over-reaction to movements in the market could, in-fact, be exploited over and over again.

Conservative portfolios are facing new, untested risks. Artificially low interest rates as a mechanism to stimulate growth by developed countries around the world is in its 11th year, with no end in sight. Treasury debt around the world is also at unprecedented levels; with the risk of slowing growth, it’s common to wonder how this debt will ever be repaid. Credit risk may be the new, developing scare for a Treasury debt holders; a new eventuality where a country may be forced to miss a debt payment.

Diversification may be the best way to mitigate the risk of being too conservative. By including a small number of stocks, the portfolio may be in a better position to generate capital gains and survive inflation over the long-run.

At Eureka Wealth Management, I help my clients look beyond their fears with their investments and help them understand the potential rewards from accepting a moderate amount of risk. I also calculate the required rate of return on their investments depending on their financial goals, such as retirement. Call for a free, initial consultation at (760) 537-0791 or online at

FT 9/18/18: “Rising inflation and sluggish growth pose dilemma for BoE”

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