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Questions tagged [risk]

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 endeavor carries some risk, but some are much more risky than others.

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Computing risk-neutral probability of spot rates

I am trying to use a binomial model to price options wtih bonds as the underlying security.If the current term structure is flat at 6%, but next year, I assume the one-year spot rate will be either 5% ...
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Risks and threats in signing empty SSA-89 form

A financial institution is asking to sign form SSA-89 which is used for verification of the social security number assigned a person. This verification is requested by a third party. The third party's ...
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How to properly tune insurance deductible/excess for risk appetite

We all know you can arrange a higher deductible (USA) or excess (UK) to pay a lower insurance premium. My question is, is there an established method to identify what is the optimal size of ...
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Holding shares of company filing for bankruptcy

I own few shares of PG&E and recently got an intimation from my broker regarding the chapter 11 bankruptcy filing by PG&E. However, I also see the stock price going up for some reason. I ...
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1answer
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What are the risks with investing in private real estate funds via Fundrise?

I recently discovered this real estate investment company, Fundrise, and after doing some research, I’m interested in investing with them. But I’m on the fence about the trustworthiness of their ...
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6answers
320 views

Rational risk-assessment decision framework: Should I buy health insurance?

Update: I've posted a sub-question on the math stack exchange to help answer part of this primary question. Sub-question: Toy problem: How much should I rationally be willing to pay for this ...
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Buying ex-local authority/council properties in the UK

What are the risks of investing in ex-local authority/council properties in the UK? I am referring to purchasing from a private landlord an apartment that was built by a city council for social ...
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Investments for Higher Expected Returns

In general, investments carrying more risk and volatility provide higher expected returns than those with lower risk and volatility. A 1-year T-note will provide a guaranteed return of 2.6%, slightly ...
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Interest rate risk of bond that is held to maturity

While reading online about interest rate risk associated with bonds it stated that if an investor plans to hold a bond until its maturity then interest rate risk is insignificant since the final ...
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Why many travel insurances don't cover country of nationality?

It seems that it is common practice among many (but not all) travel insurance companies to exclude country(ies) whose nationality the traveler possesses (even if the traveler does not live in his ...
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1answer
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Where do Master Limited Partnerships (MLP) lie on the risk/yield spectrum?

MLPs are required to pay profits to their limited partners. Dividend stocks can choose to stop paying dividends. Corporate bonds payments are fixed interest (a set number) but MLP payments are usually ...
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How to estimate the profitability and risk of investing in rental properties?

There was a recent question, Is it a good idea, to buy a flat with a loan, whilst using the rent to pay it off?, which was closed due to asking opinion-based advice. However, the question can be ...
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Does a bond mutual fund qualify as “bonds” for the purposes of risk management?

I am re-balancing my portfolio to be a little more conservative. I am considering taking some of what's currently in equity ETFs and putting them into VBMFX, a "Total Bond Market Index Fund". Is ...
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Why do people save so much?

When I am old and retired (70 years +), I don't plan to spend a lot of money. I'll be living in my own house that is already paid off at that point, so no rent or mortgage payments. Since I don't need ...
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7answers
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Does dollar-cost averaging just means taking risk later?

I am investing in mutual funds and hence reading and trying to learn about it. I was reading this answer which says lump sum investment is far more efficient than DCA. Well, that does not surprise me....
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3answers
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Risks of selecting a pension plan in the USA

I am looking at a possible employment opportunity with a state-affiliated institution in the United States. They offer a couple of options for retirement plans, and one of them is a pension plan. Of ...
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Profit reached faster then expected, what are good sell / hold heuristics?

End of January I got my feet wet into a position and added to that same positions after noticing it was doing well 3 months after. 8 months into holding the value went up by 40%+ (no major news ...
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How to balance the risk of owning one real estate?

I am about 45 years old and recently began to receive a US government pension, which I do not require for current expenses. The monthly payment is about a quarter of my living expenses, but due to my ...
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Are there speculative ETFs analogous to investment funds?

Are there ETFs that bundle up highly speculative investments with high risk/reward profiles? For instance, they might currently include Zambian, Nigerian, Brazilian and Venezuelan bonds; ...
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2answers
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Why is there less buzz around IEP (Carl Icahn) than BRK.B (Warren Buffett)?

IEP is 95% owned by Carl Icahn. It most certainly passes the Skin in the Game principle Nassim Taleb likes to talk about. I happen to own a couple of shares in it because of the man's incredible ...
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Why are tech stocks risky investments?

I've seen this mentioned so much in writings about intelligent investing, but I don't understand why. Are Amazon and Netflix tech stocks?
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6answers
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Why cannot LLCs be used to negate increased risks when doing leveraged investments?

Let's say that I am confident that some investment will grow by 15% per year, and that I have 10K to invest, and I'd like to use leverage to invest 100K. What stops me from creating an LLC with 10K ...
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2answers
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How to determine the right level of disability insurance based on a person's lifestyle

I'm trying to determine what level of disability insurance is right for me. A thought crossed my mind: certain people experience less risk of disability. A person who works from home is at less risk ...
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2answers
294 views

What would happen to stocks during war [closed]

Let's assume if U.S went to WW3 in far or near future. If it is the case what would happen to the stocks and companies? Will the stock fall enough to the point stock would just disappear? what about ...
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How can I combine winrate, (risk/reward), and expectancy into a single formula?

winrate = wins / (wins + losses) I fiddled around with it and found that: requiredWinrate = risk / (reward + risk) Expectancy formula expectancy = (winProbability x averageWin) - (lossProbability ...
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How to mitigate 401k risk with bonds?

I’ve read that for 401k’s, you want to reduce risk as you get older and the primary means to do that is to move money out of stocks and into bonds. Assuming that principle is generally valid, then ...
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Should I spread my 401k investments across more than one broker?

After many years contribution, my previous employment's 401K account has more than 500K now. I don't like its plans which have less returns comparing with plans from other broker companies. I am ...
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Benefits of investing at different stages of the supply chain

Say that I believe that the market for electric cars will explode in coming years. What are the benefits/detriments of the following investments at various levels of the supply chain? Raw materials, ...
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Why does risk level matter?

In a perfect market, the extra losses of a high risk portfolio should exactly match the difference in returns between that and a low risk portfolio. In other words, a sufficiently diversified ...
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100 views

Ordering forms / areas of investment by risk

I have studied investing for a short while and would like to test my knowledge by asking a question about this ordering from lowest risk to highest risk of investment opportunities: Government backed ...
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2answers
288 views

Are mutual funds composed of bonds really as low-risk as the bonds themselves?

I live in the US. I often see advice that a retirement savings account should include a combination of stock mutual funds and bond mutual funds, with the relative weights depending on the years to ...
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Risk free rate formula breakdown

In risk free rate formula below why is 1 added on numerator and denominator and the value is substracted by 1 Rf = (1+nominal risk free rate)/(1+inflation) -1
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Funds managed by companies that go bankrupt?

With all the talk of Wells Fargo looking pretty shaky, what's the deal with people that have investments through them? It's their fund, but it's not really in them? What happens to holders of ...
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6answers
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Losing Money with Norbert's Gambit

In attempt to avoid the usual 1.5-2% exchange fees levied by brokers, I perform Norbert's gambit: I purchase DLR.TO in CAD (Canadian dollars) from TSX, journal it over to DLR.U.TO, and then sell the ...
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Is an Income Mutual Fund a good alternative to a savings account?

From what I've seen Income Mutual Funds, particularly an Index Income Fund, are relatively safe with a return greater than any 'guaranteed' return investment option. Obviously the actual return is ...
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1answer
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What is the risk-neutral probability?

I discovered how to price European options and stumbled over a term and an equation I didn't understood : If we assume that investors are indifferent to risk and that expected returns on all assets ...
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2answers
238 views

Diversify across multiple brokers?

Right now my brokerage account has a non-trivial fraction of my total assets. It's all in a single account with Interactive Brokers. I know in theory customer funds and assets are ring-fenced, but ...
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Should I be worried that I won't be given a receipt if I pay with cash?

I'm getting an aftermarket accessory installed on my car by an individual. The person has actually been recommended to me by a big dealership in my area and this person seems to be pretty reputable ...
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5answers
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How often do typical investors really lose money?

I know this is a bit too trivial for most of you, but please bear with me as I am a novice at this. My question is: How often does an investor lose money? What I know is: investors lose money by ...
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When buying a call option, is the financial stability of the option writer relevant?

A call option allows a person to buy a stock at some future date for a specified price. By implication, if it is "in the money" you'll be able to buy the stock at a potentially deep discount. So it ...
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9answers
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Why do banks finance shared construction as mortgages instead of financing it directly and selling the apartments in a building?

The numbers in this question are for a developing country, so rates may seem high, but I tried to make them look reasonably related to each other to illustrate this question. The question also assumes ...
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1answer
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What makes one smart and/or successful in investing? [closed]

Pretty broad question, but I hear these things thrown around a lot and was wondering if such a canonical or straightforward definition exists. To make this simple: What makes an investor "smart" as ...
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7answers
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High-risk investing is better for the young? Why?

I have heard statements such as the question's time. Basically, it's a financial motto: "If you're young, take on more risk." I don't really understand it. I figured risk-tasking is a personal/...
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1answer
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Why is “1” subtracted in the formula for nominal risk-free rate?

Nominal risk-free rate = (1 + risk-free rate) x (1 + rate of inflation) - 1 Why is one being subtracted at the end?
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As a 22-year-old, how risky should I be with my 401(k) investments?

As a 22 year old guy, how should I plan my financial life regarding my 401(k) investments? How much risk should I be taking? Also, is it a good idea to invest in a dynamic portfolio with smart beta ...
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3answers
177 views

Building a diversified portfolio at market high

I am a Canadian, setting up an ETF-based RRSP in Questrade. Right now I have 70% of my portfolio in Canadian bonds, the other 30% of my portfolio is in cash, in USD. I am modelling my portfolio after ...
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How to find out who manages funds?

So I am interested in a fund. I want to know if I can trust the people running it. I don't know however, how to find out who they are. I have thee name of the company offering the firm but no ...
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Does dollar cost averaging apply when moving investments between fund families?

We'll likely be moving ~$100,000 (two Roth IRAs, about 80k/20k split) from a mix of Nationwide funds to a combination of Vanguard whole-market stock and bond index funds (details below). All else ...
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1answer
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How to evaluate ETF correlations regarding risk? [closed]

I have picked three ETFs, collected 5 year historical data and calculated the correlation of daily end prices. I calculated the following correlations: A B C A 1 B 0.77 1 C 0.49 0.72 ...
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Risk to Reward Ratio Calculation

I'm learning how to do a Risk/Reward ratio and want to make sure I am calculating this correctly. Let's start with a .92 per share of 500 shares purchase = $460. I expect the stock to increase by ....