Although it would be nice, there's no one definition of "risk." it
depends on your perception and how you see it. Sometimes an obvious
risk to one person may be completely missed by the next person. As
an exchange traded fund (
) investor, how do you cope with this aspect of investing?
Neal at Wealth Pilgrim says that
there ways to make smart decisions about risk, which is an
inherent aspect of investing in anything, whether it's stocks or
ETFs. Risk can be broken down into four categories:
- Required: Risk that you simply need to take to reach a
- Perceived: What's risky to you personally.
- Risk tolerance: The maximum risk you're willing to
- Risk capacity: How much risk you can afford to take on.
Risk can mean very different things to every investor, at
different times. For example, you might have started off
risk-tolerant before suffering a big loss, which has in turn made
you more risk-averse. The trick is to apply the right definition at
the right time. [
How to Deal with Undefinable Risk.
First step is to identify the risk: Is it real or imaginary? At
the very least, whether you have assets in the markets or not, you
are reflecting on how risky your assets are, how risky you need
them to be, and what the goals are for them. [
Ways to Make Sense of Irrational Markets.
Most important is to not fall prey to the thinking that just
because you're comfortable, there is no risk.
decision comes with a bit of risk.
Use a strategy to help mitigate your risk when you are in the
markets. We use the 200-day moving average to determine when we're
in and when we're out. When a position is above its 200-day, it's a
buy signal. When it drops below or 8% off the recent high, it's a
sell signal. Having such a strategy has you in a position in time
for any potential long-term uptrend, while having a point at which
you sell puts a cap on your losses. [
10 Tips to Manage Risk.
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