Risk and Return
You often hear friends and colleagues talk about their investments that may have increased 50% in a single year. Oddly, they never seem to talk about their investments that go down in value!

Over a five year period, if you had an investment that rose 50% per year in three years, but lost 50% per year in just two of the five years, would you buy it? How would you do? Would it matter if the down years were at the beginning or end of the five years?

As the chart below illustrates, with a $100 investment, only two bad years out of five overwhelm the three years of 50% gains. At the end of five years, the portfolio is actually worth less. In addition, it does not matter when the bad years occur. Everyone loves a good return; experienced investors also know to pay attention to risk.

$100 Investment Year 1 Year 2 Year 3 Year 4 Year 5
Gain/Loss  -50% -50% 50%  50% 50% 
50.00 25.00 37.50 56.25 84.38
           
Gain/Loss  50% -50%
50% 50% -50%
 150.00 75.00 112.50 168.75 84.38
           
Gain/Loss 50%  50% 50%
-50% -50%
 150.00  225.00 337.50 168.75 84.38
           
Gain/Loss  -50% 50%
 50% 50%
 -50%
 50.00 75.00 112.50 168.75 84.38


We believe the three components of a successful investment strategy include:
  • Saving early and consistently
  • Achieving reasonable rates of return year over year
  • Assuming a level of risk that enables you to sleep at night

At Private Capital Management, a subsidiary of Guaranty Bank and Trust Company, we work with you to develop a personalized plan to help you reach your financial goals.
250 Steele Street, Suite 350 Denver, Colorado 80206  Phone: 303.370.0055
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