Finance “Risk” is a word that comes up a lot when talking about personal finance and investing. But have you ever stopped to think about what it really means? How exactly do you define “risk” – what it is, what it isn’t and why it matters? Part of the problem is that risk is a very personal experience. To some, it’s a vague, difficult-to-pinpoint feeling of anxiety about money and the future. To others, it’s much more tangible: risk is the chance of losing money in the stock market. Some people believe that risk should be avoided at all costs. Others shrug it off, believing that it’s an inevitable part of investing (and life), and therefore not worth fretting about. Let’s be clear about one thing: there is no such thing as “risk free” investment. This means that we have to try to understand risk, and deal with its impact on our portfolios – because sooner or later, it will impact our portfolios. But how exactly should we do that? How can we come to think about it in a rational, reasoned way? How can we make a good decision regarding how much risk we accept in our portfolios, and how can we manage that risk once we’ve taken it on? Understanding “risk” (and how you can manage it) What risk is, what it isn’t and why it matters to your portfolio By James Dolan CSANews | SUMMER 2016 | 27
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