Risk is the potential that a chosen action or activity (including the choice of inaction) will lead to a loss (an undesirable outcome). The notion implies that a choice having an influence on the outcome sometimes exists (or existed). Potential losses themselves may also be called "risks". Any human ...

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0answers
92 views

What fraction of a portfolio should P2P lending comprise?

Based on what I understand, traditionally we are supposed to put 70% money in stocks and 30% money in bonds (based on individual age, I am 33 right now). I have been experimenting on P2P lending and ...
2
votes
3answers
79 views

Fundamentals of creating a diversified portfolio based on numbers?

There are a number of articles and posts across the internet describing how to diversify your portfolio. But, each claim typically focuses on how to allocate your portfolio rather than describing ...
-1
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1answer
63 views

How does a person with a large equity in a company hedge his risk

How people like Bill Gates , who has the bulk of their wealth tied up in MSFT shares, hedge their downside risk in case the share price tanks? If he were to buy put options like the rest of us, it ...
0
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0answers
22 views

Managing risk: financial risk due to future health problems as a dollar amount

I am analyzing my long-term saving goals against the overall strategy of reducing my risk in various areas. One of the areas of risk I want to reduce is that of financial woes due to future health ...
1
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0answers
41 views

What happens if futures contract seller defaults?

I'm considering buying a put future to hedge against interest rate increase. I know there is a certain level of protection from default as required by the contract, but I assume the risk is not zero. ...
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2answers
100 views

What are the real risks in “bio-technology” companies?

Biotechnology companies are often in the top 10 of the most lucrative businesses in a market. For example on Friday 13th march, the company I am interested in was among the best performers of the day ...
1
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2answers
96 views

What is the standard deviation and mean return of oil?

Let's use WTI. I'd like to add oil to my portfolio, and I was wondering how much I should have. I'm in 60-70% index and 40-30% individual value stocks. I want to cut back on my value plays and add ...
0
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2answers
48 views

Risk and reward of a synthetic option position

I am trying to understand option synthetics. This article mentions: For example, if your stock is at $100 per share and the you sell a 105 Call and buy a 105 Put, you have zero risk (and zero ...
0
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4answers
203 views

Is it smart to only invest in mid- and small-cap stock equity funds in my 401(k)?

Historically, mid-cap and small-cap company stocks have outperformed the market. Correct? Since I'm not going to touch the money in my 401(k) in over 40 years, wouldn't it make sense to invest ...
4
votes
4answers
349 views

Why I cannot find a “Pure Cash” option in 401k investments?

I am of an opinion that I should decide where my money should get invested and if it should get invested at all or not. When I looked at the investment options I have with my 401k money, I figured ...
1
vote
3answers
40 views

how derivatives transfer risk from one entity to another

In his book 'options, futures and other derivatives', John hull writes: Derivatives such as forwards, futures, swaps, and options are concerned with transfer- ring risk from one entity in the economy ...
0
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3answers
231 views

Is this trick enough to totally prevent bankrupcy in a case of a crash?

I have a trading scheme that is very profitable but is also really dangerous because it opens a lot of trades at the same time with high leverage and else. So the trick is to open only short (sell) ...
1
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1answer
92 views

Why are U.S. Treasury interest rates are so low vs. other nearly risk-free rates?

I was reading Options,Futures and Other Derivatives by John Hull and I came across the question: Why are US Treasury rates significantly lower than other rates that are close to risk-free? I ...
5
votes
3answers
122 views

Why does financial investor bother to buy derivatives and then hedge the position?

I am recently studying mathematical finance, and I am not really familiar with how the financial system works. This might be a naive question: when reading some books on mathematical finance, ...
1
vote
2answers
80 views

How do companies protect employees' income from currency flucturations? [closed]

Say you are an export-oriented company, selling products abroad and receiving income in some (nominally stable) basket of currencies. Now let's suppose your own domestic currency, the one you use to ...
0
votes
0answers
55 views

What's the best trading period : Weekly, daily or hourly?

I'm designing an Expert Advisor with MetaTrader5 using Neural Networks. I'm working with EURUSD but the EA works with any forex currency almost the same (~2% difference max). If I choose 1 hour ...
3
votes
1answer
53 views

Risks in investing savings into retail superannuation in Australia?

What risks are there if I invest all my savings into retail superannuation? I'm still working part time, in my 60s, but would like to get a regular (pension type) income tax free, from investing in a ...
1
vote
2answers
110 views

Any strategies to screen high risk, hopefully high reward stocks? [closed]

Can't seem to find anything geared towards that. Looking to allocate a small proportion to such stocks.
1
vote
1answer
245 views

Why does shorting a call option have potential for unlimited loss?

Referring to http://en.wikipedia.org/wiki/Option_(finance), for a short call: If the stock price increases over the exercise price by more than the amount of the premium, the short will lose ...
1
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1answer
72 views

How to manage currency risk in international investing

Exchange rate fluctuations can wipe out or augment your return from a foreign stock investment. Is there any way to protect yourself from such risk?
0
votes
1answer
79 views

Are index trackers subject to insolvency risk?

If I invest my money in a bank account, the bank could go bankrupt and I could lose all my money - well, at least I could have in the distant past, before government deposit insurance was invented. ...
7
votes
10answers
2k views

Ideal investments for a recent college grad with very high risk tolerance?

I recently graduated college and got a steady job making decent money as a software engineer/programmer. I make more than enough money to sustain myself and save up money, while still having money ...
1
vote
0answers
56 views

Setting and measuring risk profile target for retirement account

I understand that as you age you want to slowly lower the risk profile of your retirement account, but how should I determine how much risk I should take on currently and how do I measure how much ...
1
vote
1answer
48 views

What to know before purchasing Individual Bonds?

What are the different factors and terms one should be acquainted with before investing in individual bonds? I'm currently looking at: It's all rather foreign to me though. When I look at this page ...
4
votes
1answer
610 views

Should I be more aggressive in a Roth IRA, 401k, or taxable account?

I presently have a mix of Vanguard funds spread throughout taxable and non-taxable accounts. Some advisors claim it's better to take risk in the taxable accounts while placing bonds in the IRA. ...
2
votes
1answer
67 views

Why is volatility in a positive direction clubbed in the same risk category as volatility in a negative direction?

Let's say a stock's price has been steadily rising for the last 6 months. It's going to have (a relatively) high volatility. Let's say another stock's price has been falling steadily for the last ...
2
votes
1answer
198 views

How to evaluate investment risk in practical terms

I've seen previous questions about risk here and here, as well as read some stuff in books about similar ways of assessing risk. However, as discussed in one of those questions, a lot of the ...
10
votes
2answers
1k views

When the market price for a stock is below a tender offer's price, is it free money (riskless) to buy shares & tender them?

For instance, on March 11, 2014, Jos A Bank (JOSB) agreed to be acquired by Men's Wearhouse for $65/share in cash. A tender offer to existing shareholders was set to expire on March 19th. On March ...
1
vote
2answers
162 views

Do bond interest rate risk premiums only compensate for the amount investors might lose?

Consider two different bonds: one riskless, and the other risky. Suppose the risky bond has a known probability of default. Suppose a market is made in these bonds, with investors trying to maximize ...
5
votes
3answers
137 views

What's the difference between buying bonds and buying bond funds for the long-term?

I know that if I buy a bond and hold to maturity, I will get the value plus the coupon. If rates go up, the resale value of my bond will go down, and vice versa. However, what happens if I buy into ...
1
vote
1answer
87 views

Reasonable alternatives to using the Treasury rate as the risk free rate, e.g. for CAPM calculation?

For all practical purposes, the risk free interest rate is taken to be the short term Treasury bill interest rate. Let's say this rate is 0.5% per annum. But for an individual investor, if his bank ...
5
votes
3answers
153 views

Is there any reason to diversify your investments across accounts at multiple/different brokers?

I have a few retirement accounts at Vanguard. I am considering opening a regular non-retirement investment account there. Is there any reason to diversify and open the new account with a different ...
7
votes
2answers
132 views

Bond prices: Why is a high yield sometimes too good to be true?

Thank you for taking the time to explain me this. I'm looking at bonds prices at Yahoo Finance (see attached image) And it seems to good to be true: A-rated bonds at YTM rates of 11% and more. ...
3
votes
2answers
666 views

When to start investing in an index fund? Wait for a bear market, use dollar cost-averaging, or another approach?

I think index funds are one of the best investment tools for the defensive investor. Still, when should one start investing money in an index fund? It could result in a loss to get in at the top of a ...
10
votes
2answers
1k views

What is the difference between hedging and diversification? How does each reduce risk?

Hedging and diversification are both used for reducing financial risks, but what are the exact differences between these two?
25
votes
7answers
21k views

How do rich people guarantee the safety of their money, when savings exceed the FDIC limit?

I am curious how a millionaire would guarantee the safety of his money, given that the FDIC only insures up to $250K of an individual's deposits at a bank. If someone had $3 million that they wanted ...
5
votes
1answer
293 views

Should my retirement portfolio's asset allocation become more conservative over time?

It seems to be common advice that a retirement portfolio should be invested aggressively when one is young, and conservatively when one is older and closer to retirement. Is this good advice? ...
3
votes
1answer
130 views

Can I get a dumbed down explanation of risk measures used for evaluating stocks?

Hoping this will be a good reference question for the site. Can someone explain in a way that doesn't require a lot of math/statistics background what the following terms mean when analyzing the ...
2
votes
2answers
703 views

How much lump sum investment in stocks would be needed to yield a target stable monthly income?

Situation: a guy has a lot of money. He wants to invest in stable and low risk stocks so that he could get a steady 1000$ a month income at least for the next 10 years (and having equal or bigger ...
5
votes
4answers
152 views

Is there a term for the risk of investing in an asset with a positive but inferior return?

For example, say I invest in a 5-year certificate of deposit at 3% annually. Let's assume the bank delivers on time (no defaults). However, a month after I buy it, another bank offered a 4% 5-year ...
5
votes
2answers
135 views

Does long term asset growth really converge to that derived from compound interest formula?

Many websites/experts claim that the longer you hold your assets, the likelier your asset's return is closer to that predicted by the compound interest formula. However, some other experts claim ...
3
votes
3answers
194 views

What is the theory behind Rick Van Ness's risk calculation in the video about diversification?

In the video, Rick Van Ness states the following scenario: Stock A has a 7% return with +/- 1% risk Stock B has a 3.5% return with +/- 0.5% risk Stock A and B are perfectly negatively correlated. ...
2
votes
1answer
120 views

How can I estimate the sensitivity of a bond ETF's price to interest rate changes?

Is there a standard method for estimating the sensitivity of a bond ETF's price to interest rate changes? Some of the information I have includes the average duration and the SEC yield.
6
votes
1answer
751 views

How do small cap stocks perform vs. large cap stocks (like Dow constituents) during bear trends?

Does anyone have any good information on how small cap stocks, e.g. < $500M, perform during bear trends and/or recessions in comparison to large cap stocks like the Dow Jones Industrial Average ...
3
votes
1answer
354 views

Is there difference in risk between physical or synthetic replication of an index by an ETF?

I understand that there are different ways to manage an ETF. Some use physical replication where they seem to buy the actual stock to track the index it is following. Others use synthetic replication ...
3
votes
2answers
188 views

What risk of a diversified portfolio can be specifically offset by options?

I have been reading articles on portfolios and options. It seems options are used to hedge portfolios for multiple risk factors. I would like to know why options, and why not futures? What is the ...
3
votes
2answers
303 views

What's the least risky investment for people in Europe?

I have a few thousand euros in a bank deposit and I was wondering where I should invest them, considering that I won't want to take much risk? I am ready to accept the lower ROI than investing the ...
2
votes
1answer
353 views

Who is the issuer in a derivative contract?

In the case of a bond or a share, there is a bondholder or a shareholder on one side and a company issuing the security on the other side. In a derivative contract, which party can be named as the ...
2
votes
1answer
130 views

How are derivatives treated in bankruptcy?

If I am a counterparty to a contract (swap, cds etc.) with an entity that went bankrupt and I am due some payment, how "senior" is my claim (amongst the other creditors where do I rank)? I'm sorry if ...
8
votes
4answers
1k views

How risky are penny stocks?

I've recently gotten into several discussions on penny stocks, and I intuitively know that they're far more risky than large cap companies with real assets, but is there any measure of how risky they ...