Sounds simple, right? And yet I'm often running into folks who proudly tout their 10 percent return on investments - and who are taking on risk they clearly don't understand. Then, when the roof caves in - as it often does - they're left to wonder what they did wrong. Well, it starts with ignoring a basic rule of investing: the greater the return, the greater the risk. (I see this a lot when folks pull up a list of dividend yields, starting at the top.) Carl Richards, a certified financial planner, explains further on the NYT Bucks blog:
The experience of many people has been that the well-intentioned search for the best investment actually cost them money. They bought at the peak and sold at the bottom, and their overall returns ended up being meager. I suspect lots of these people would gladly trade their actual experience over the last decade or more with simply having their money returned to them. So, what if the key to investment success is to start by making sure that you don't lose money? Could it be that accepting a lower rate of return might result in having more money than continuing the wild goose chase of this magical 10 percent we hear that the stock market delivers over time?