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How to Assess Risk in a Volatile, Uncertain World
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BY STEVE DINNEN
Risk abounds. There’s risk in jaywalking across Ingersoll at rush hour. There’s risk climbing onto the roof to clear the gutters. And there’s risk in securities markets. Boy, is there, especially in today’s volatile economic and geopolitical climate, and that’s what interests Toby White (pictured), associate professor of finance and actuarial science at Drake University. One of his specialties is assessing risk, or risk tolerance – quite simply, the measure of how much of a loss an investor is willing to endure within their
portfolio.
It’s relatively easy to define, and relatively hard to pinpoint. What exactly is the amount of risk you’re willing to accept for the payoff – the reward of a profitable investment? There’s no precise measurement, though White ticked off a number of components that go into your assessment.
Inflation, for instance. It creates risk. So does war in Ukraine, both for security and for the unsettling of commodities markets where Russia plays such an outsized role. The ongoing presence of COVID and the many supply chain issues
the pandemic created are certainly components of a risk assessment. The run-up in interest rates has created risk, as has inflation. And White noted these are sudden jolts to markets – never a formula for a risk-free environment.
All of this has created volatility – and upped the risk game. “The volatility is here to stay,” said White.
People in general have differing perspectives on risk depending on age, gender and affluence. “People who are younger and just starting out are more about capital appreciation than capital preservation,” said White, and thus perhaps willing to take on more risk to achieve their goal. He noted that a number of his students at Drake are investing in cybercurrencies. Not huge amounts, perhaps, but still, they’re in a risk environment that differs greatly from buying a dividend-paying utility stock.
People with more money than those college kids might be expected to be able to handle
higher risks, too. But White said that’s not always the case, since people who have a substantial amount of money may invest in a relatively conservative manner in order to preserve what they already have.
Your risk tolerance may change with life events – marriage, divorce, death in the family, etc. You are expected to have a vastly lower risk tolerance at age 75 than at age 25. All stocks, no bonds will reverse to all bonds, no stocks. But there’s no escaping risk – wherever you are.
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What Is Your Personal Risk Tolerance Level?
BY STEVE DINNEN
Risk tolerance boils down to a single number; you just have to find it. Are you comfortable with a stock sliding 10% before you give up on it and sell? 15%? 3%?
I may have already shared this, but it bears repeating: Until recently, I didn’t have a formal risk “policy.” Then I was commiserating at lunch one day with John C., a friend, about how my position in USX Corp. had cratered 55%, and he gave me a better number than that – 10. “Ten percent and it’s out,” he
said. Good, solid advice that would have saved me a bunch with USX.
I have three trading platforms – a taxable account, an IRA and a Roth IRA. Each has a different risk tolerance. Ten percent and out applies to taxable trades, while I’ll let a stock slide 15% in an IRA because I own stocks there that are more volatile.
The most volatile stocks – biotech startups, for instance – are in my Roth IRA and consequently carry the highest risk tolerance. But here my hope is to grab the biggest gain, which is free of taxes. It’s all about balance.
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With the World a Mess, Young People Have Quit Saving
BY ANNA P. KAMBHAMPATY FOR THE NEW YORK TIMES
In a tumultuous time, many adults under 35 have stopped playing it safe. Instead of banking as much
of their pay as they used to, they’re saving less, spending more and pursuing passion projects or risky careers.
A recent study by Fidelity Investments found that 45% of people aged 18 to 35 “don’t see a point in saving until things return to normal.” In that same age group, 55% said they have put retirement planning on hold.
For some, the isolation of pandemic life triggered the decision to enjoy the moment, financial
consequences be damned. For others, the motivation has come from worries over climate change, Russia’s invasion of Ukraine, domestic political instability, soaring inflation, through-the-roof housing costs and a topsy-turvy stock market. READ MORE.
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Evaluating the Best COVID-19 Travel Insurance Plans
BY AMY DANISE AND JASON METZ FOR FORBES.COM
No matter what your vaccination status is, if you plan to travel you may want to have a financial safeguard in place for pandemic-related trip problems. This is especially true if you’re traveling abroad, where your U.S. health plan may have limited global coverage. Travel insurance can provide that safety net.
Not all travel insurance plans cover COVID-related problems. To help you find the best pandemic travel insurance we evaluated 50 plans using data from Squaremouth, a travel insurance comparison provider. READ MORE.
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