Be Risk Aware, not Risk Averse

Today, we’ll walk through why this common mistake occurs, why it's dangerous, and how smart investors align their portfolios with their personal risk profile — letting returns naturally become a by-product of smart risk decisions.

1. How Most Investors Think Today: Return First, Risk Second (or Never)

Many investors fall into these traps:

• Comparing everything to the S&P 500. Even balanced portfolios and global funds are compared to the S&P 500, despite completely different risk profiles.

• Setting unrealistic return goals without understanding risk.

• Aiming for "8-10% returns" without considering the risks required.

• Judging success solely by short-term performance.

• Ignoring whether the portfolio aligns with their actual needs and goals.

2. The Fundamental Truth:

Returns Are the Result of Risk Exposure — Not the Other Way Around. Every portfolio’s return potential is tied directly to its risk level. Higher risk = Higher potential returns and higher chances of large losses. Lower risk = Lower potential returns and greater stability.

Risk is the input. Returns are the output.

3. Why Misunderstanding Risk Leads to Big Mistakes

Focusing only on returns can cause:

• Excessive risk-taking without realizing it.

• Panic selling during downturns.

• Unrealistic expectations and portfolio abandonment.

• Failure to meet actual financial goals.

4. How to Invest the Right Way:

Step 1: Assess Risk Capacity and Risk Tolerance

• Risk capacity: Your financial ability to handle losses.

• Risk tolerance: Your emotional ability to stay invested through volatility.

Step 2: Define Financial Goals

• Identify timelines.

• Define objectives and critical milestones (e.g., retirement, education, home).

Step 3: Design Asset Allocation Based on Risk

• Choose your equity, bond, cash, and alternative exposures based on risk, not returns.

Step 4: Set Return Expectations Realistically

• Accept returns that match your portfolio's risk, not arbitrary benchmarks.

Step 5: Monitor and Adjust Over Time

• Rebalance as goals or circumstances evolve.

5. A Simple Analogy: Racing Cars vs Family Sedans

Imagine two drivers: Formula 1 car: High speed, high risk. Family sedan: Reliable, safe.

It’s unfair to compare their performances. Each vehicle serves a different purpose — just like different portfolios.

Your portfolio should match your financial "vehicle," not someone else's race.

6. How Alamut Capital Helps Investors Invest Smarter

At Alamut Capital, Risk comes first. We build portfolios after a deep risk profile analysis. Returns are a by-product. We seek the highest risk-adjusted returns.

Personalization matters. Every investment journey is unique. Our Investment Solutions and How they align to Risk and Goals. Explore our Investment Solutions for more information.

Final Thought

Define your risk. Align your investments. Let returns follow. Investing is not a race for the highest return. It’s about reaching your financial destination safely and confidently.