KnifeMissile

I've been trading a lot of stock lately and while I'm happy to say that I've been turning a profit, it is actually a lot of work (and worry!) to trade stock and I'm not convinced that I'm getting a better return on my money than I would have if I went to an investment broker, like London Life or something...

So, what kind of return do these companies offer for a high risk fund/portfolio? Is it around 10% per annum? More? Less?

Thank you...

eribrav

You're asking an unanswerable question. A high risk portfolio could return large gains, large losses, or somewhere in between. Additionally, they won't all perform the same way and returns will vary by how the manager is doing that particular year.
A good starting point is to consider that you can earn (at least in the US) about 5% absolutely risk free in Treasuries. Is that an adequate return for you? If it is then your decision making is easy. If you want to take risk in order to potentially make more, then you have to start looking at other investment classes.
I would argue that the short end of the US yield curve, up to about 2 years duration, is attractive right now. The stock market is offering a lot of risk and I don't find it very attractive right now.

slimshaydee

Like eribrav said, it depends on your risk tolerance. Do you want less risk than the market, do you want to emulate the market performance or do you want to beat the market? If you want a higher return than you are currently getting now you'll have to take more risk (unless of course you've hardly diversified your portfolio at all).

If you state your risk tolerance I'd be able to give you an indication of the types of securites you should be investing in.

KnifeMissile

This didn't specify my risk tolerance enough?
Well, I'm looking for extremely high risk, comparable to the risk I would take if I (as a layman) were to simply trade stocks, myself, with a higher expectation of profit, or the same expectation of profit with lower risk. Whatever it is they offer...

And I disagree with eribrav that the question is unanswerable. I'm certain that if I went to the actual investment companies, they'd give me an estimation of expected profit! All I'm asking for is what is realistic... I'm sure that 400% per annum is not realistic, regardless of how much risk factor I'm willing to take.

eribrav

You're scratching the surface of something that's highly complex, and looking for a simple answer. There isn't a simple answer.
No company is going to give you any sort of estimation of future profit. They have no way of knowing. They also realize there could be losses, not profits.
Why do you imply that trading stocks is "extremely high risk"? I trade stocks all the time, but I am very risk averse and have a structured trading system that makes me a VERY low risk trader. It works for me. I'm going to guess that you know little or nothing about risk aversion, and money management techniques that facilitate safe investing and trading. I'd suggest you start educating yourself in that area.

KnifeMissile

The emphasis is mine.

I don't know, I've (briefly) talked to two different investment companies in my life and both gave me estimation of future profits, which is why I thought they did such things.

As for trading stocks, I can look at stock prices and see how volatile they are and conclude that they are high risk. Prey tell, how do you avoid risk in such an environment? If your suggestion of "educating yourself" is honest, why don't you point me in the right direction? How does one learn about such things?

spindles

Most companies will give you a clear picture of their historical performance. Unfortunately, these are not at all a clear indication of their future performance. Company X might've done really well in 2005 because of one trader, who might not be at the company any more. They may also have done really well as the stock market might've been in an upward trend and *everybody* did well regardless of how good they actually were.

These companies would like you to think they can predict future earnings but somewhere in the fineprint will be an "investment is risky - don't complain if we lose all your money" clause. Some years you get better returns by putting your cash under your mattress

__________________
who hid my keyboard's PANIC button?

eribrav

The volatility of stocks is not what makes them high risk; it's lack of an effective money management strategy that makes traders high risk. The biggest problem most traders have is their failure to limit risk, which is secondary to their reluctance to admit they are wrong and close a trade at a loss. If you structure your trades so that no trade can ever lose more than 3% of your portfolio, well then it doesn't really matter how volatile a given stock is. As I said I am risk adverse, so I risk less then that with each trade. My position sizes may be large or small, but I"m out of a trade well before a loss of 3% hits my portfolio.

I enjoy reading Bill Fleckenstein (Fleckensteincapital.com) and Real Money (RealMoney.com). James Deporre in particular on the Real Money site has great insight for strategies for small traders as well as effective risk management. They're both pay sites but I know at least Real Money offers a free trial. Give it a shot!

Baraka_Guru

Be careful when investment companies go on about their predicted earnings. Most money managers never meet their benchmarks. Only a select few can actually beat the market, but there is no way of knowing who they are in advance.

You said you've been turning profits on stocks... over what period of time have you accomplished this and what kind of return are we talking about?

In any purely stock environment, it's difficult to minimize risk unless you diversify across industries. As we've seen in past years, things can go awry in an entire sector.

If you want to minimize risk, the only sure way is to either diversify across industries or spread your money into other types of investments such as bonds and real estate trusts.

There is a lot of literature that compares actively management vs. passive management, and in many cases it's the passive management that wins out. This, of course, over the long term. If you're trying to make money in the short term using stocks, you may find your luck will run out.

__________________
Knowing that death is certain and that the time of death is uncertain, what's the most important thing?
—Bhikkhuni Pema Chödrön

Humankind cannot bear very much reality.
—From "Burnt Norton," Four Quartets (1936), T. S. Eliot