5 Things You Should Know About Risk and Your Investments

Trading Discussion Risk Management Practices
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Hello…A Big Welcome to all of You…

Today… I am Going to talk about 5 Generous Risk Factors which everyone should know…

Risk and volatility are not one in the same.

As Per I Think:-Some risk is necessary to make money on your investments.

Risk is an integral part of investing. Generally speaking, it is the counterbalance to return. Although we hear many money managers and advisors talk about “Risk Management,”

Here are a few key points I took from his memo, titled, “Risk Revisited.”

1- Volatility is not risk.- Academia has defined risk as volatility because it can be measured. It is a foundational concept underlying the majority of financial models. Stocks are often assessed using their betas, or their fluctuations, in relationship to the market. In fact, beta has become perversely ubiquitous with risk.For example, the utility sector’s beta is about half that of the Standard & Poor’s 500 index (depending on the time frame measured). It would be a grave mistake to assume that by purchasing a utility, one is exposed to half of the risk of the market.

2- Risk is the potential to lose money permanently.- Continuing with the utility company example, there are a plethora of risks associated with stocks. Volatility may provide a modicum of insight into the overall risks. However, it dupes the investor by failing to account for anything company specific

3- Risk is necessary- Attempts to predict the future will most often lead to failure. However, an investor can understand how the risks relate to each company without necessarily predicting the exact outcome. Great investors are astute at thinking of a range of possible outcomes and selecting investments that have more ways to win than lose.

4. Nobody knows the unknown, but some investors don’t know this- Most investors realize this is a loser’s game, as nobody knows where the market will be in the near and long term

5. Prudent acceptance of risk is superior to shunning the unknown- Risk must be taken or there will be no return. If an investor has a short time horizon, they should wish to avoid illiquidity risk, but they may be comfortable with leverage risk or credit risk. On the other hand, just because an investor has a high risk tolerance does not mean it is smart to take unnecessary risk.

Credits:-Brett Carson
Source:- www.usnews.com

3 Likes
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This is interesting but you should really credit the author and source.

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Yes…Thanks for Pointing me towards this…i have edited the post and Mentioned the Author and the Source…:slight_smile:

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Thanks for sharing this, especially point 3 is crucial. No risk, no reward. :wink:

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Thanks for Reading My post…:slight_smile:

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  1. Risk is necessary or risk is involved? Forex is associated with high leverage. And it makes forex a risky business. When you are doing trading, you are taking a huge risk. I don’t think we need to take more risk.
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It is interesting, I like you a lot, in fact I will continue investigating

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I like the post. Good info. Thanks for sharing.

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thanks for sharing it, it’s very interesting

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Many things are already covered by other in above mentioned forum replies, i would say your risk and investment ratio can be calculated via using analysis and technical fundamentals which are used by experts in market.

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Good post.

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Very true. Some traders forget this. The predisposition toward taking high risk does not automatically guarantee profits.

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It is very interesting but we need to maintain the risk and avoid the volatile market.

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Why are some letters capitalized? :open_mouth:

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It is such an insightful read with all correct chords but we should also consider the volatality of the market and how it can accelerate the risk factor. Thank you for sharing this.

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Rightly said, risk is an integral part of investing, it is the counterbalance to return. Thank you for sharing this article.

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I totally agree with this. Risk can’t be avoided in trading but it can be controlled. Set your limits and know how much you are willing to lose.

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I agree, the first rule in trading is to only risk the money you can afford to lose. Many traders, especially beginners, skip this rule because they assume that it “won’t happen to them”. What do you think about this?

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I agree with you. I have seen many traders over trading in the beginning with the motive to earn more or recover the loses from bad trades but in that course they end up losing more since they don’t make a plan or strategy. So it is very important to set your limits and know when to stop so that you don’t lose more than you can afford

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This is such a good read, surely risk is a crucial part of any investment and in trading , it is unavoidable. Though, every trader should try to optimise the risk factor.