On today’s podcast, I am back with another episode in the investing series and today we are talking about portfolio risk. I think most of us make investment decisions based on stocks or investments we like or others have told us about and put together our portfolio without thinking about the risks in our portfolio.
Risk management is something that professional portfolio managers pay attention to, yet I think many individuals give it little thought. The biggest reason why people avoid it is because they don’t understand the measurements of risk or how to apply them to their own funds.
I think this is another great investment topic and I’m thankful to my friends Wendy and Eric at DIY Fund for joining me again to talk about it. Not to mention the fact that their site gives you the very tools you need to assess your own portfolio risk.
Shot of the Day
Sex On The Beach
- Portfolio risk is one of the most important investing topics to understand.
- If you are not getting paid for the risk you are paying for, you are not performing properly.
- People often don’t realize what is risky and what’s not risky.
- The riskier assets are the ones that will move up and down (have more volatility) eratically.
- Generally speaking, stocks are more risky and bonds are less.
- Volatility is a statistical measure of the movement of a stock.
- Too many people focus on the upside of risk, but the greatest investors focus on the downside risk, which is key.
- Having a mix of risky and less risky asset types will help protect you from losing more than you should.
- If you are going to put more risk in your portfolio, you should get the returns from that.
- The Sharpe Ratio is an equation to help you calculate the risk in your portfolio.
- Understanding the risk component of your returns helps you adjust from year to year.