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Investors' Biggest Risk: Themselves

Far too many practice reverse-market timing, repeating the endless cycle of buy high, sell low, says Investor Solutions' Frank Armstrong.

We recently surveyed a few financial professionals to hear their thoughts on managing risk (and their clients' risk tolerance) in today's environment. Frank Armstrong III is the president and founder of Investor Solutions, a registered investment advisor based in Coconut Grove, Fla., and he answered our questions on what risks are underdiscussed and/or underrecognized today, concerns about the risks of a rising-rate environment, and protection against macroeconomic risks. He also addressed the key lessons learned from the bear market of 2008-09 and the risk of higher taxes in the near future.

What risks do investors face that you think are underdiscussed and/or underrecognized?
The biggest risk many investors face is their own behavior. Far too many practice reverse-market timing, repeating the endless cycle of buy high, sell low, and wonder why they are not profiting in the world's capital markets. While not all investors fit this pattern, we know from watching cash flows into and out of mutual funds that after the market has gone up substantially, investors pile on. And after a dip in market prices they head for the doors. All of our past experience indicates that having an appropriate asset-allocation plan and sticking to it through thick and thin is the best predictor of investment success.

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