How much can you stand to lose?

One of my favorite columnists is Jason Zweig of the Wall Street Journal.  His Saturday column, “The Intelligent Investor” strikes me as a straight forward, common sense view on the markets and investing.  His recent piece on buying stocks at record highs was particularly interesting because of the way he addressed the potential for loss.  As 2013 comes to a close and markets bounce around historical highs, the time may be right to reflect on portfolios, how they are allocated and how much loss can be sustained if markets retreat. As investment managers and financial planners, risk is often discussed in terms of percentage loss.  I believe discussing loss in terms of a percentage falls short of trying to help clients understand risk and the potential for loss.  This shortcoming was frequently proven during the last financial crises when clients grew anxious over dollar losses that did not reconcile with the equivalent percentage loss they said they were willing to accept. When deciding on the right mix of cash, bonds, hybrids and equities (a diversified portfolio), Mr. Zweig rightly suggests Read on! →