In Greek mythology, Ulysses had to sail through the treacherous Strait of Messia on his return home from the Trojan War.  On one side of the Strait was Scylla, the six-headed monster who would thrust forth her long necks, and in each mouth seize one of the crew of every vessel passing within reach. On the other side was Charybdis, a sea monster who, thrice daily, sucked and expelled great amounts of water.  The resulting whirlpool would engulf any ship steering too close.  Only by navigating a precise course between these two dangers could the crew return home safely.

Investors have their own Scylla and Charybdis through which to navigate:  the twin monsters of risk.

The very act of investing is the deliberate exposure to market risk.  Invest a dollar and get $1.10 in return… or 50 cents.  Everyone wants a high investment return… without risk.  The chance of loss is the rub.  Some people have no emotional capacity for market risk.  The pain of potential loss overwhelms any possible advantage of potential gain.  And after all, isn't it all just greed?  Isn't it irresponsible, to risk hard-earned income when it can be left safely in the bank?

A paradox is that those most anxious to avoid market risk often rush straight into its jaws.  For example, many people consider real estate to be a sure thing, even as the bubble is bursting.  Bonds are universally touted as the safest haven, but at this point in the interest rate cycle, long-term bonds are among the riskiest investments of all.  Yet commodities and emerging markets, once thought suitable only for gamblers and the foolhardy, have been consistently rewarding.     

Unfortunately, veering too far away from all market risk brings us too close to that other monster, inflation risk.  The preservation of purchasing power.  Whereas market risk is immediate and visceral, inflation risk is far more insidious, like heart disease..the silent killer.  You don't realize you lost until the money runs out far sooner than predicted.  But if you earn 5% in a certificate of deposit, and the S&P 500 increased by 15%, you lost money, and that loss is every bit as real as a market risk loss.

In recent years, rising inflation and a falling dollar have increased the minimum return necessary to maintain purchasing power  As such, the S&P 500 alone is no longer an adequate benchmark.  In 2007, the S&P rose just 3.5%, but almost 20% return was required to maintain purchasing power.  Most investors are unaware that they are falling behind.

Successful investing manages risk.