Rules of the Game: Mitigate Risk

One of the tenets of portfolio construction is to allocate assets to mitigate risk. Investors accustomed to focusing on equity markets often misunderstand that concept. For example, I recently worked with a client who believed she had a conservative portfolio because she was invested mainly in large-cap, dividend-paying stocks. She was not factoring in the risk inherent in an all-equity portfolio.

In a different vein, I know another investor who is concerned about her fairly late start. She is 70, and believed an aggressive growth-stock strategy would provide a fast way to make up for lost time. In this case, the investor was ignoring the downside risk of high-beta stocks. One of her significant positions was Rackspace Holdings (RAX), which rallied to a high in January but has skidded 50% year-to-date....442 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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