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Dentists Who Invest

Portfolio Composition⁣

Porfolio-Composition
⁣An interesting fact is that the majority of individuals’ retirement portfolios consist of some combination of bonds and stocks.⁣

These are known as paper assets.⁣ ?

They are known as paper assets as originally they were recorded and traded on paper.⁣

Nowadays they are of course digital.⁣

Historical data has shown us consistently that stocks outperform bonds in terms of returns over long periods of time (10 years +)⁣

The majority of retirement portfolios are not needed for at least 10 years… ⁣
…this is due to the fact that the majority of people are older than 10 years outside of retirement.⁣

They’ll typically only begin to touch this money the day they retire..⁣

In the meantime, the idea is that our capital will grow as much as possible and give the greatest returns.⁣

Now if this is the case wouldn’t we want our portfolio composition to be aligned with the assets that the data shows historically give us the highest returns?⁣

Of course, there’s no way to predict the future BUT certainly, I want my portfolio to be evidence-based. ⁣

(just like my dentistry)⁣

So why is it that the majority of these portfolios contain assets that inhibit their overall growth in value?⁣

Remember, the greater the rate of appreciation of our portfolio is the sooner we reach retirement after all….⁣

The answer is an interesting one….⁣

The composition of our portfolio in this regard is usually based on an “Attitude to Risk Assessment.”⁣

This attitude to risk assessment attempts to quantify our attitude to risk. (no surprises)⁣

We are assessed on a scale and put in a box based on our perceived attitude to risk. This is quantified from low to high.⁣ ?

A “higher risk” portfolio is said to be one that is more weighted towards stocks.⁣

A “lower risk” portfolio is said to be one more weighted towards bonds.⁣

Of course, what is said to be risk stems from our interpretation of the term risk.⁣

If both assets have the same amount of data to back up their longevity….⁣
…and both have shown consistent appreciation over many decades.⁣

Then can one be said to be truly more risky than the other in that sense?⁣

ACTUALLY what they are equating risk to be is the VOLATILITY of the assets.⁣

Volatility is the amount the price fluctuates over time.⁣

But as a general rule, the assets that have greater volatility also have greater returns.⁣

(Not always of course – but in these cases they do)⁣

So with that said – shouldn’t we be looking for the assets with greater volatility?⁣

As these have scope to accelerate the date we can become financially free?⁣

And isn’t the greatest risk of all that the returns we achieve in a “low-risk” portfolio will never be enough for us to reach financial freedom?⁣

FLIP? the conventional interpretation of risk on its head and you’re closer to the mark in my opinion on this one.⁣

The more you know.⁣


*Not Financial Advice

Disclaimer: The content on this blog is meant for informational purposes only and does not constitute financial advice. Readers should seek guidance from a professional financial advisor before making any investment decisions.

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