How To Start A New Portfolio
One of the most challenging issues for investors is how to initiate a new portfolio. We have received numerous emails from users on this problem. Many complained that once they started to follow a portfolio, they immediately experienced a loss. Though there is a psychological Murphy’s law here (similar to the feeling that you move to an even slower line right after switching to this line from a crowded one while waiting in line), this problem is indeed important: in fact, many new users will immediately dismiss the strategy or portfolio as not working and abandon it. This happens to many of our strategies including Strategic Asset Allocation (SAA) and Tactical Asset Allocation(TAA) portfolios.
Reasonable expectation on risk
Many users often start to follow a portfolio or a strategy when that portfolio has been doing well recently. In fact, this often is the most dangerous time to initiate such a portfolio. The key to understand here is that regardless of what strategies and portfolios, other than cash and short term bonds, they are all long term strategies that require patience and long term following. A long term strategy implies that there is a short term risk at any given point of time. For example, look at the following chart:
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