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Step 10: Risk Capacity

Step 10: Risk Capacity

“Investment Policy [asset allocation] is the foundation upon which portfolios should be constructed and managed.” – Charles D. Ellis, Ph.D., Investment Policy, 1985

“Rip Van Winkle would be the ideal stock market investor: Rip could invest in the market before his nap and when he woke up 20 years later, he’d be happy. He would have been asleep through all the ups and downs in between. But few investors resemble Mr. Van Winkle. The more often an investor counts his money—or looks at the value of his mutual funds in the newspaper—the lower his risk tolerance.” – Richard Thaler, Ph.D., Economist, University of Chicago Booth School of Business

“What if your advisor talks only about returns, not risk?… It’s his job to take risk into account by telling you the range of possible outcomes you face. If he won’t, go to a new planner, someone who will get real.” – William Sharpe, Ph.D., Nobel Laureate in Economics, 1990, Money Magazine, 2008

“Design a portfolio you are not likely to trade… akin to premarital counseling advice; try to build a portfolio that you can live with for a long, long time.” – Robert D. Arnott, “Is Your Alpha Big Enough to Cover Your Taxes?,” 1999

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