One concept we stress with our clients is the difference between investments and investing. Investments are the individual components or puzzle pieces – each but a part of something larger than itself. No one can control or modify the risk/return characteristics of a single investment, but when you combine different investments into a well designed portfolio, you can, indeed, affect the risk/return characteristics of the portfolio. That is investing.
Most people would logically describe a “good” investment as one that grows in value and a “bad” investment as one that declines in value. Actually, we think of good and bad investments in terms of predictability. A “good” investment is one that does what we expect it to do and a “bad” investment is one that surprises us by its actions. As we stated previously, we cannot control the risk/return characteristics or behavior of any single investment, but we can design and assemble a portfolio that is predictable. “Predictable” allows you to sleep better.