Managing investment risk by John Weitzer, CFA, senior vice president and senior investment manager for Wells Fargo Private Bank in Milwaukee
Recently, the severe bear market correction reminded us that successful investing is not about taking undue risks, such as chasing hot stocks or putting all your savings in GM bonds. Investors need to understand (1) their tolerance for risk; and (2) the risks present in their investment portfolios. To be a good investor, you need to be a good risk manager.
In the investment world, risk is typically measured by price volatility. You may have heard the word “standard deviation” thrown around as a measure of portfolio risk. It means how much the value of an investment moves up or down. The more a portfolio goes up or down, the higher the “risk” of the portfolio. Focusing solely on price volatility to manage risk can lead to poor investment results. It’s only one piece of the puzzle.
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