A Must-Read If You are An Investor

In partnership with

Meet an investor who consistently outperformed the S&P 500, boasting an impressive 18.8% return over its annual 10.4% for over two decades! Surprisingly, he's not Warren Buffett.

Rather, he generously shares his investment strategies with the public each year, offering invaluable insights. That luminary is none other than Howard Marks.

Marks, renowned for his quarterly memos, offers astute observations on financial markets that often foreshadow significant trends. Take, for instance, his April 6, 2020 memo amidst the COVID crisis. He astutely noted that failing to capitalize on the market's downturn would be a misstep, accurately predicting the onset of the COVID rally.

However, let's pivot to his most recent memo, which delves into the paramount importance of risk-taking for investors. As both a portfolio manager and a dedicated investor, Marks underscores the necessity of comprehending risk. It's not about shunning risk altogether, but rather discerning between beneficial and unnecessary risks. Indeed, avoiding risk entirely could be the riskiest move of all, as it virtually guarantees failure to meet financial objectives.

Yet, our evolutionary instincts, honed over millennia to prioritize survival, often hinder our ability to embrace risk in the modern investment landscape. While our ancestors' caution served them well against perilous threats like alligator-infested rivers, such risk aversion can stifle success in today's investment arena. Our innate aversion to risk is a vestige of a bygone era, ill-suited to the complexities of contemporary investing.

Key points:

The Risk of Not Taking Risk

The famous saying of “No risk, no reward” is often true. As a portfolio manager myself, I am paid to take a certain level of risk to generate returns for my clients (and I thank them for that trust!). As an investor, if we don’t take enough risk, we are potentially risking even more. You may not reach your financial goals or meet your retirement needs. In short, you play too safe, you will never win.

The key is understanding how to take risk in a meaningful way that can generate returns to meet your needs while not ruining the portfolio. The willingness to live with some losses is an essential ingredient in investment success.

How to Take Risk?

If the odds of success of an investment is favouring you overwhelmingly, that risk is worth taking. (e.g. 70% chance of winning). However it does not mean it will always be a successful outcome because 70% chance of winning equals 30% chance of losing too.

But if the same odds are taken repeatedly enough. (i.e. a diversified portfolio) You will win in the end. Just like how casinos survive on 50.2% win rate because they don’t play against 1 gambler but MANY gamblers. They lose some but win most)

Pete’s thought

This comes at a time where to market is almost at all time high and interest rate is very high too. But there was a meaningful pullback in the last month and it is freaking out many investors. Perhaps, Howard Marks is once again telling us something…..

You can read the full memo here

But if you are still afraid of taking risk, Betterment may have a solution that you can consider.

Put your money to work in a high-yield cash account with up to $2M in FDIC† insurance through program banks.

Get started today, with as little as $10.