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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What percent of a portfolio should be directed to high risk assets to enable outsized returns?

Over the years, I predicted a few assets that went up in price a ton. However, I never owned any of those assets. Stuff like FAANG, Tesla, Bitcoin. Had I invested in those at a young age by the time I ...
ZeroPhase's user avatar
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How to compare "block lists" for brokerages?

I currently invest with Merrill Edge and they have a fairly strict "block list" and don't allow many high risk securities to be purchased. Here is an example: Merrill Edge blocks active ETFs?...
Chirag Patel's user avatar
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1 vote
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Why does NPV correspond to "cash in our pockets now" for risky investments?

For a positive NPV project with risk free cash flows and assuming access to a competitive money market, it is trivial to show (by appropriately borrowing or lending at the risk-free rate) that the ...
EE18's user avatar
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Risk of bonds bought on the primary and the secondary markets respectively

Let's suppose investor 'A' buys $100,000 of US inflation-linked treasury bonds, and that investor 'B' buys $100,000 of an ETF that tracks the exact same type of TIPS. Let's suppose that, after ten ...
Martel's user avatar
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4 votes
1 answer
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Does a portfolio of low beta stocks, small stocks or value stocks still outperform the market?

I am new to investing. Currently I'm trying to read about it as much as possible. There is one question that bothers me quite much that I cannot find an answer to, so I decided to ask here. There is a ...
yaskovdev's user avatar
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3 votes
2 answers
421 views

Is overnight rate swap ETF viable alternative to low-risk bank products?

I live in a eurozone country. While the ECBs deposit facility rate is 3.75%, interest rates on savings accounts and similar low-risk products are less than 1% with the best offer being 2%. Overnight ...
kubek's user avatar
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6 votes
2 answers
3k views

Why do secured bonds have less default risk than unsecured bonds?

Why do secured bonds have less default risk than unsecured bonds? Secured bonds are backed by specific assets of an issuer while Unsecured bonds are backed by all assets of the issuer - so shouldn't ...
sai_varshittha's user avatar
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125 views

Is it worth it to diversify the "risk-free" portion of a portfolio across multiple assets?

I am looking into the constructing of my own sort of "structured product" and have been thinking about the risk profiles of the "risk-free" portion of products like this. Generally,...
QMath's user avatar
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2 answers
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Whose balance sheet is relevant to gauge the risk that I lose my shares in case of financial bankruptices?

If there is a financial crisis in the future; whose balance sheet is relevant to assess the risk that I lose my shares in case of bankruptcies of financial institutions? I assume it is the balance ...
Mikke Mus's user avatar
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1 answer
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Are Bonds holder paid before Stock holders in USA unlike Europe AT1 Bond holders?

I see news that AT1 holders of Credit Suisse , a type of bonds that were a solution to 2008 crisis. ...They were created in the wake of the 2008 financial crisis as a way for failing banks to absorb ...
puzzled's user avatar
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Is it possible to hold stock certificates directly without any counterparty risk whatsoever?

I would like to invest in stocks of various companies, however I am deeply concerned with the counter-party risk that the institution which holds the assets on my behalf carries (e.g., a bank or a ...
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How do I compute the annual risk-free return?

I need to know what the annual risk-free rate of return has been. I know no such rate actually exists, so let's say I want to use the "overnight" rate as a proxy. But the overnight rate is ...
Amended's user avatar
1 vote
1 answer
76 views

How would one profit from an accurate forecast of tomorrow's price varience?

If one had a reasonably accurate forecast of the variance of the price of some market security, such that one knows approximately what the price variance will be tomorrow, but not whether the price ...
andrewH's user avatar
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Do I own ETFs when going through a broker?

I am considering investing in ETFs, mostly to learn, and without any formal financial education. If this matters for the question, I am French living in France. I started to read about ETFs and found ...
WoJ's user avatar
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Why are ETFs rated at 6 on Risk and Reward Profiles?

I am considering investing some money in shares and since I do not at all a specialist, I wanted to do this on ETFs that would be aligned with some large indexes (iShares Europe for instance). My ...
WoJ's user avatar
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Why is simply buying an in-money-call and a lower strike price put near an event date a good low-risk high-reward strategy?

My premise is that buying both an in-money-call and an lower strike price put near an event date, is perhaps, one of the better low-risk high-reward strategy. Why? If the stock moves significantly ...
AJKOER's user avatar
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What percentage of companies could have a consistent lower "return on capital" to its owners/shareholders and a higher risk than the S&P 500?

What percentage of companies/startups in the US or any other country could have a consistent lower "return on capital" to its owners/shareholders and at the same time a higher risk than the ...
user96769's user avatar
24 votes
11 answers
7k views

Why should I hold stocks for the long term when the risk of more companies going bankrupt increases over time?

The longer the time frame, the larger the risk that any given company is going to go bust. If this is the case, then why is long term stock investing encouraged? Isn't it more risky to invest for the ...
Flux's user avatar
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Can I trust Zelle to credit my account for added charges?

I listed a dress for $300 on FB Marketplace. The buyer uses Zelle so I set up an account because D said that was the only way she sent funds. She said she sent Zelle the money. So I get an email ...
Barbara Christman's user avatar
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1 answer
109 views

Financial and/or credit risk management

A portfolio consists of two (long) assets £100 million each. The probability of default over the next year is 10% for the first asset, 20% for the second asset, and the joint probability of default is ...
Win_odd Dhamnekar's user avatar
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3 answers
112 views

What is the downside for covered call options?

What is the downside of selling covered calls on the stocks or ETFs you own that have appreciated significantly from their original purchase price?
DEEM's user avatar
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1 answer
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Calculate the required return using an asset pricing model

The current stock price of HHBA A is 101.00$. The last dividend payed for HHBA A is 3.50$, and dividends are expected to grow at a constant rate of 6%. Now i should calculate the required return using ...
Hrvoje Krizic's user avatar
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1 answer
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Understanding buying power and position size relative to fixed percentage risk on total capital in any given trade?

I'm trying to wrap my head around understanding buying power, position size and how it's relative to how much I can risk in any single given trade depending on my initial total capital. For example, ...
TheAmazingKnight's user avatar
19 votes
3 answers
4k views

Why would long-term investor care about volatility? [duplicate]

I'm 35 and I want to start investing for my retirement. My question is, why would you care about volatility if your investment horizon is 30+ years? In order to get a more clear picture of volatility ...
Mark's user avatar
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1 answer
81 views

How do GICs compare to something like an S&P500 index fund in terms of risk? [closed]

How do GICs compare to something like an S&P500 index fund in terms of risk? Could it be argued that index funds are generally as safe as any investment? Is there any data or models to measure or ...
Beginner Biker's user avatar
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1 answer
105 views

Today Stock Price is 15. Find value of Call Option

Stock price is $15 today. In a year, it has 50%-50% chances of going up or down. If it goes up, then 80% probability of the price being $25. If it goes down, then there is a 40% probability of price ...
Mining's user avatar
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2 votes
0 answers
76 views

How much risk is there in securities lending? [duplicate]

I worked for a startup for many years and as a result I have a lot of shares in a company that went public via a SPAC deal. I know it's risky but I'm choosing to sell them over a period of a few years ...
Craig W's user avatar
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4 votes
3 answers
411 views

How can a mutual fund be considered any risk at all if it has an average 5 year 17% return? [duplicate]

I am confused as to why mutual funds/ETFs in lets say BRSVX - Bridgeway Small-Cap Value could be considered having any risk since the 5 year return is at 17%. Doesnt that mean that in 5 years it hasn'...
DES's user avatar
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4 votes
1 answer
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Buying a home in a high-price, climate change-exposed region

I moved to southern California recently for work. This is the first time I'm stable enough to consider buying a home. Based on some standard decision rules for home buying, I'm ready: I can afford the ...
Dr. Beeblebrox's user avatar
0 votes
2 answers
95 views

How do the long-term returns of a high-variance investment compare to those of a low-variance investment?

Variance over the short-term is a useful way of comparing the risk of investments. Got a home purchase or large medical expense coming up? Better not to have too high variance on your invested savings....
TheEnvironmentalist's user avatar
1 vote
1 answer
137 views

Did I give bad advice about investing in market making firms?

Background: I recently explained to an amateur trader (who happens to be a family member) about the basics of the bid-ask spread and how market makers make money from the spread. As an offhand remark, ...
Flux's user avatar
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3 votes
0 answers
64 views

Diversification vs VTSAX

What advantage do I gain by holding a mix of mutual funds over just VTSAX? One oughtn't put all one's eggs in one basket. One mitigates risk by holding multiple distinct asset classes in multiple ...
StevePoling's user avatar
0 votes
1 answer
79 views

Searching for stock risk measure where a value of around 15 is fine

I am reading through some stock analysis documents (unfortunately they don't seem to be available online). They calculate something that they call "risk". For Amazon stocks its around 18 (...
Big M's user avatar
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0 votes
2 answers
171 views

What is the highest return risk-free investment available?

Investing is about balancing risk and reward. Any good investment will typically allow for nominal risk for a healthy return, but let's suppose that's not what I'm looking for. I want something with ...
TheEnvironmentalist's user avatar
1 vote
1 answer
105 views

If I buy to close a call position and the option writer defaults, am I liable for the original position?

Let's say that I sell covered calls and they are purchased by Alice. Later, I buy these calls (which were written by Bob) to close my position. Let's say that Bob's short calls were naked. Suppose ...
Dathan's user avatar
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2 votes
3 answers
263 views

Should I invest 50% of my savings (20K) into a family business?

Somebody in my family is proposing an investment opportunity. The deal is as follows. You put 20K and he is going to use it to sow rice, the return depends on the price per kg of rice but he tells me ...
Mauricio Rondon's user avatar
0 votes
5 answers
1k views

If options gives you the RIGHT but not the OBLIGATION to exercise them, then why are they being forcefully exercised if they expired in the money?

Now, I know what you're thinking. If it's in the money, isn't it good that your broker automatically exercise the options for you on expiration date? Well, yes and no. If you somehow managed to miss ...
frosty's user avatar
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0 votes
1 answer
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Is it possible for a stock that is consecutively trading above $1 to get delisted?

Is it ever possible that a stock that is consecutively trading above $1 to get delisted? If so, how, and for what reasons? And if it happens, how often does it happen?
frosty's user avatar
  • 119
13 votes
5 answers
4k views

Risks of using home equity for high risk market investing

I bought a home after the market crash in 2009 and I have quite a bit of equity in it now (100k). I still have 20 years until I retire and currently my main brokerage account is very high risk / high ...
Jacksonkr's user avatar
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0 votes
1 answer
164 views

Can a risky asset have negative beta coefficient?

I have a question from my tutorial asking whether Can a risky asset have negative beta coefficient? I can only think of how this is possible only if risk-free rate is more than the expected returns, ...
JJ Lin's user avatar
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0 votes
2 answers
128 views

When buying an insurance policy, is it necessary to analyze the credit risk of the insurance company?

When saving money in a bank, one does not have to worry about credit risks of the bank because there is deposit insurance. When buying insurance, do I have to worry about the credit risk of the ...
Flux's user avatar
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4 votes
2 answers
274 views

What is the most risk-free way to invest a lump sum of cash for 1-2 years? [duplicate]

I received a signing bonus with my most recent position for which, if I leave the company after one year I must return half, and can keep the entire amount if I stay two years. I am a very risk-averse ...
Gramatik's user avatar
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28 votes
8 answers
5k views

What are the options to beat the returns of an index fund, taking more risk?

I am young, and will start my career in about three years. I do NOT live nor have any intention of ever moving to the United States, and I will probably be based in Europe for my career and after (...
embedded_dev's user avatar
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5 votes
1 answer
763 views

Should retail investors learn and use the capital asset pricing model (CAPM)?

I heard that the capital asset pricing model (CAPM) is commonly studied by finance students, and can help in controlling risk in stock portfolios. The CAPM looks rather complex as it seems to require ...
Flux's user avatar
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11 votes
1 answer
3k views

Moving a 401k balance to multiple FDIC-insured IRAs to protect my funds against being wiped out by a market crash?

My wife and I are living on our Social Security benefits. I've been very pleased with the growth of my Fidelity 401k in my former employer's retirement plan. As far as I know, I can leave my balance ...
Mark Hubbard's user avatar
0 votes
2 answers
121 views

Is an issuer risk free financial product secure if the bank holding it goes under?

When purchasing ETFs or other financial products, I only choose finance products that are "issuer risk free", which means that in case the institution that sells these products goes broke I ...
yippy_yay's user avatar
0 votes
2 answers
111 views

What kind of stocks are riskier than average?

What kind of stocks are riskier than the 'average' stock, and thus should be avoided? Please articulate the reasoning as much as possible.
J Li's user avatar
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1 vote
2 answers
366 views

Are government bonds really risk-free?

When I read finance textbooks, I read things like "assume that the risk-free rate is equal to the yield on 30-year government bonds", "the government bond earns at the risk-free rate&...
user102086's user avatar
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3 votes
4 answers
1k views

401(k) opt out Company matched funds allocated

Based on the current volatile climate unfavorably forecasting the future of brick and mortar retail stores facing continued lost revenue, the unprecedented growth of eCommerce, and to further damper ...
Mark Carter's user avatar
0 votes
0 answers
47 views

What are the implications of ETFs lending out their holdings?

I've noticed some ETFs describing how they can lend out their holdings, usually for some amount of collateral (cash, U.S. government securities, stand-by letters of credit, etc). If we take GDX, for ...
Robert Campbell's user avatar

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