Many people invest backwards. They focus a great deal on the merits of one stock versus another, or analyze whether the time is right to add high yield bonds or emerging market stocks to their portfolios. But few investors step back and consider how all of their investments add up. As the 2008 market crash and subsequent 2009 recovery demonstrated, the most important decision an investor makes is how much overall risk to take. Your portfolio’s overall risk level should be a deliberate and disciplined choice, and not simply the result of a series of one-off investment decisions.
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