Risk has a few different definitions when it comes to investing. Our intuitive feel of it as "the chance that we will lose money" has some merit, but as we will see we can also think of the volatility of the returns of a portfolio as being a measure of risk.

Risk is one of the most important concepts to understand in all of investing. Most investors that fail do so because they failed to use good risk management practices.

This tutorial will examine ways that you can define, measure, and manage the level of risk in your portfolio.


The Most Important (and Tragically Neglected) Four Letter Word In All of Finance

One of the best ways that I have found to get acquainted with the strategies of some of the top hedge fund managers and traders in the world is to read the classic Market Wizards series of books. Author and trader Jack Schwager has...

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Do you Know How Risky Your Investments Are? Here's One Way To Figure That Out

In finance, risk has a very precise definition - the standard deviation of returns, also called "volatility". Standard deviation is a mathematical calculation that looks at how widely a series of data "moves around" from its trend-line average.

Black Swan

How an Irascible Dark Bird Might Threaten Your Retirement

Investors lucky enough to secure a spot in one of Bernie Madoff's funds had it pretty good. Year after year Madoff produced remarkably consistent positive returns. By all accounts, their volatility was quite low. Madoff's investors must have...

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How To Temper the Swings of Your Portfolio... and Sleep Better At Night

When it comes to investors, you have people like Warren Buffett, and then you have people like my cousin John. Studies show that most investors are more like the latter.

Buffett is, of course, the famous investor who become one of the richest...

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The Market Will Inevitably Fall Off a Cliff Again Sometime - Here's How To Make Sure Your Bungee Cord is Fastened

Anyone with money invested in the stock market has to be prepared to suffer a sudden loss of capital, like "Black Monday" when stock markets fell over 20% in one single day. Some smart risk management techniques can reduce your risk of getting hit by what has been called a "black swan" event. 


How to Use Monte Carlo Analysis to Assess the Probability of Meeting Your Lifetime Goals

In a previous article, we discussed how risk in the investing world can take on many different forms. One type of risk that often gets left out of the discussion is the ultimate risk that you really should care about: the possibility that you...