Investors are often pulled in two directions. On the one hand they may need income and capital appreciation. On the other hand, investing is an uncertain endeavor and many investors want some protection in case the market goes south.
Investors often get tripped up when they don't understand their ultimate goal. The more specific the goal is, the easier it is to put together a portfolio to reach it.
"People who are saving for retirement for instance, don't have a good idea of what they are saving or investing for. 'I'm investing because I want to grow my money,' they say," Stammers says.
"Say I'm investing for retirement, which means I need $100,000 a year that is inflation-protected for 30 years with some capital appreciation," he says.
That's quite different from simply trying to save $2 million as your end goal.
"It gives you the right foundation for a goal. That is where most people fall short," Stammers say.
With the right goal in mind, you can craft your investment plan and choose assets that will support that goal without taking on too much risk.
"Investment management is risk management. Increasing the chance of reaching goals is doing more risk management than anything else," Stammers explains. For instance, investors may not need to load up on risky stocks to hit a big retirement goal if they have time on their side and the discipline to let investments compound over the years.
Think market risk is the only thing to be careful of? There are actually many other types of risk to worry about.
How do you manage risk in your own investing?
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Senior investing reporter Sheyna Steiner is a co-author of "Future Millionaires' Guidebook," an e-book written by Bankrate editors and reporters. It's available at all the major e-book retailers.