Risk Less and Prosper by Zvi Bodie & Rachelle Taqqu

Author:Zvi Bodie & Rachelle Taqqu
Language: eng
Format: epub
Publisher: Wiley
Published: 2011-11-15T16:00:00+00:00

CHAPTER 6

Your Personal Risk Profile

All men should strive

To learn before they die

What they are running from, and to, and why.

—James Thurber

So far, our discussion of risk has aimed to deepen your familiarity with the losing end of the risk–reward trade-off. The idea is not to warn you off all risk, but to illustrate why it’s so important to choose risk wisely and well—so that losses, when they occur, are not ruinous. The best way to do this in an uncertain world is to determine your risk set point. This is the single most important investment decision you will make.

To guide you, you have your goals—and especially your needs, which dictate where your risk set point will lie. This approach works well because it is so specific. It defines your investment risk in a personal way—your risk is the chance of falling short of your goals, and not the volatility of what you own. The goal-driven approach also keeps risk manageable by separating your aspirational wants from your fundamental needs, which you cannot afford to place at risk.

In addition to your goals, you also have a distinct personal risk profile, which provides you with a second line of attack. Understanding this profile provides the chance to retest your risk set point. And it also serves the second purpose of helping you decide how audacious your risky zone can be.

But how can you bring your risk profile to light? A good approach is to amalgamate the objective view from outside and your subjective judgments from within. Both matter. Ideally, they will complement one another, although this does not always happen. There is considerable debate about whether people have inborn traits that predispose them toward taking or shunning risks, but you don’t have to believe that risk preferences are predetermined in order to discern individual behavior patterns.

Read on to get a handle on both the objective and subjective sides of your risk profile. We’ll also look in on Paul’s group to see how they discover their personal risk portraits. As you begin exploring your own risk profile, you may get a more accurate result if you, too, work in a group or invite a partner to help. If you’re not ready for a financial advisor, choose someone who is not too shy to give you an honest opinion.

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.