Far too many investors get it wrong, and perhaps no other group more so than the Millennials. In a recent cover page article on the investing habits of the Millennial generation, IBD reported that Index ETFs are the investment vehicles of choice for these 19 -35 year olds. I maintain that this is foolish and simply the result of the young investors not being aware of the powerful decision tools that are available to them.
I have personally discovered that the sweet spot with investing is to have a truly accurate understanding of your own tolerance for the markets’ inevitable pullbacks and drawdowns. Most fundamentalists approach this problem with a static model that considers standard deviations, beta,percentage drawdowns or some numerical gauge. The reality of investing, however, is that we each have completely unique tolerances for risk and reward. This is precisely how it should be.