It’s an ancient problem, although as “problems” go it’s one of the better ones to have since it implies that you have money to manage. But it’s a problem nonetheless, and it becomes increasingly obvious as an investment portfolio grows.
Reviewing the nest egg of yours truly over the weekend revived the challenge anew of how to keep the growth relatively high in relative terms without assuming an imprudent amount of risk. Like many investors, your editor has done quite well since 2002. So it goes when bull markets bloom like weeds. Buy now what? The portfolio’s bigger, and so is the hurdle to keep up the momentum.
It should come as no shock to learn that growing a fund of, say, $100,000 at 10% per annum is far easier than keeping a $1 million fund rising at the same rate. Yes, it can be done, but it requires increasing amount of skill, luck or both.
The problem is further compounded at this juncture in the investment/economic cycle, or so we believe. There are more than a few risks swirling about the capital markets these days. The fact that most markets are at or near all-time highs suggests one or two things to the jaded mind producing the text before you.
The point being that reaching for the extra return at this point may be dangerous, perhaps more so than usual. Yet the incentive for reaching today is probably higher than it’s been in some time. Given the capacity for bull markets to lift all boats and raise expectations, most investors have portfolios that are materially larger compared to, say, five years previous. Some of that can be attributed to skill, but most of the growth was no doubt spawned by the genius of a bull market.