Part 8/9:
Long-term investors, including retirees, may benefit from a higher allocation of stocks in their portfolios despite the associated volatility. Studies suggest that adjusting asset allocation according to investment horizon can optimize outcomes and reduce long-term risk.
Compensated vs. Uncompensated Risks
Investors should distinguish between compensated risks—those expected to yield positive returns over time—and uncompensated risks, which are inherently speculative. Possessing a diversified portfolio can mitigate uncompensated risks, while increasing exposure to stocks relative to bonds or leveraging well-founded market trends can enhance compensated risks.