The twin elements of investment are risk, and return. We are constantly told that you cannot get a better return, without taking on more risk (but the reverse doesn’t apparently apply. If you invest in higher risk investments, it doesn’t follow that higher returns will necessarily eventuate. And, here the argument becomes fairly circular – more risk means more risk, which may mean no return, or total loss - if you get my drift).

The current way of measuring risk, is to look at the average volatility of returns over an extended period (in practice it is a bit more technical, but this is the essence of it). The more volatile the returns, the riskier the investment, and vice versa.

This way of measuring risk has been around since the 1950’s, and it was certainly a big improvement on what went before.

However, the time has surely come for a new approach.

For people who are still accumulating funds, volatility is not so bad a measure (although far from perfect).

However, for that growing number of people who are drawing on their funds, (retirees), there are a number of pitfalls.

The message is simple. People must make real world investment decisions in real time, and NOT in some mythical world represented by “long term averages”. The “long term average world” may exist in Alice in Wonderland, but none of us live there.

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