Whether you watch CNBC, spend time on social media, or still read the Wall Street Journal, trendy stock tips are everywhere. Right now the hot topic is artificial intelligence. But before the AI craze there were many more fads: meme stocks in 2021, SPACs in 2020, electric vehicles in 2019, cannabis stocks in 2018, and way way way before any of these there was the tulip mania of 1637. Investing based on FOMO can be exciting, but chasing returns is a fool’s game.
Asset allocation is the breakout between asset classes on your balance sheet. This can be simplified by calling it the balance between risk and reward. This balance, or your allocation, should be crafted based on your personal circumstances. I like to review two basic principles with clients. First is risk capacity. This is how much risk you can afford to take. There can be tremendous downside when money that is needed in the short term is invested in assets that fluctuate in price or are less liquid (such as private equity.) My team and I determine a family’s risk capacity by reviewing their spending needs and current/future income among other factors. The next consideration is risk tolerance. This is how much risk an individual can “stomach” and maintain their asset allocation. If a family has the capacity to invest in a volatile investment, but will sell at the slightest downturn, then an aggressive investment allocation is not right for them.
Warren Buffet is arguably the best investor in recent history. His mentor, Benjamin Graham, wrote one of the most influential investment books of all time, “The Intelligent Investor”. Graham goes on to say “the investor’s chief problem – and even his own worst enemy – is likely to be himself”. Do not rely on someone who doesn’t know your situation to recommend an investment. If you do not understand your risk capacity and risk tolerance, please consult your trusted financial advisor.
Disclaimers
The opinions and analyses expressed in this presentation are based on Curi Capital, LLC’s (“Curi Capital”) research and professional experience are expressed as of the date of our mailing of this presentation. Certain information expressed represents an assessment at a specific point in time and is not intended to be a forecast or guarantee of future results, nor is it intended to speak to any future time periods. Curi Capital makes no warranty or representation, express or implied, nor does Curi Capital accept any liability, with respect to the information and data set forth herein, and Curi Capital specifically disclaims any duty to update any of the information and data contained in this presentation. The information and data in this presentation does not constitute legal, tax, accounting, investment or other professional advice. An investment cannot be made directly in an index. The index data assumes reinvestment of all income and does not bear fees, taxes, or transaction costs.
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