Questions tagged [risk-management]

Risk management is the process of identification, analysis and acceptance or mitigation of uncertainty in investment decisions.

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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 ...
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2 answers
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Best practices for protecting retirement savings?

Let's say my nest egg is in ETFs in a taxable account and an IRA with the same brokerage. SIPC insurance may cover me "if the firm fails financially", and only up to $500,000. That is per ...
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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 ...
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Equity curve money management strategy to minimize drawdowns

Some high risk/returns automated trading systems requires an on/off switch as a fail-safe feature and to minimize drawdowns. Besides using a moving average on the equity P&L curve to turn on/off ...
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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, ...
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1 answer
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How to prepare for a war [closed]

I understand that the value of investments in debt, equity, paper currency, bonds, and in physical properties all go down if the country gets into a major war. What is the best strategy to be prepared ...
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1 answer
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Reasons to not have multiple investment accounts to avoid SIPC limit

Most brokerages in the US are members of the SIPC. The SIPC provides an insurance for customers up to $500,000 for cash and securities held by the brokerage in case of troubles (bankruptcy, assets ...
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Quantifying and hedging for FX risk

So I am new to investing and currently use an AUD account to invest, but mostly trade USD denoted instruments (mainly XAUUSD). Therefore I am getting unwanted exposure to AUDUSD because of the ...
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19 votes
3 answers
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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 ...
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Is there a quantitative answer to how frequently I should optimize my portfolio?

I'm using Markowitz Mean-Variance Optimization to rebalance my portfolio of 30 holdings. I'm trying to select the best balance of funds that will return 10% with the minimum risk. I understand that ...
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Why do the traders prefer 1% rule instead of kelly criterion?

Kelly criterion determines the optimal theoretical size for a trade based on historical data of trader. However, I know many traders strongly recommend to not risk more than %1 of their balance and ...
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Calculate stock price range using standard deviation

New to stock investing hence reading up a few tutorial to better understand stocks/stock market. Came across a chapter that says, "Understanding risk with the stock market" and it says that ...
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2 answers
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What are the risk types for a large amount of savings in an index fund

I'm curious what are the possible things that can go wrong with storing half of savings in a single index fund. Specifically, I mean things other than the market going down - these are long term ...
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Are there any studies on the success of day traders? [closed]

If you know about any published research paper on trade accuracy or from broker perspective that what percentage of clients are profitable in day trading.
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2 answers
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How can I determine how much improvement (dollar value wise) I can put on an urban lot?

So, I'm in the position of considering where (within a given city/real-estate-market) I and my family want to build our next house (which will also be our first experience as homeowners -- we've lived ...
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1 vote
1 answer
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A trading program that modifies its own risk management?

The idea is that the machine would learn what level to put stops at, and where to put take profits. For example, the machine gets input about security ABC and learns the best place to put a stop. It ...
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Investing recurring aggregated short-term funds

I have half a dozen "buckets" of short-term cash sitting in money markets; e.g., vacation fund, unforeseeable house repairs, a post-COVID wedding reception, etc. Looked at individually, none ...
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Is flipping a coin with good risk management profitable? [closed]

I researched many trading strategies online, and in books, and most of the strategies said that a good risk management system was possibly more important than the strategy itself. I heard phrases like ...
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3 answers
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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 ...
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2 votes
1 answer
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Self-funded & fully-funded health insurance plans for small businesses

Imagine that a hypothetical small business in the U.S., MoneySavers, is setting up a health insurance plan that it will offer to its employees. I'm looking for clarification on any misunderstanding ...
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2 votes
1 answer
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How does Sharpe Ratio work and what are the disadvantages of using it?

I am trying to understand Sharpe Ratio and I have tried to calculate it and compare it with Sharpe Ratio value from Yahoo Finance. I took daily closing prices for SPY from February 1st, 2018 till ...
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1 vote
1 answer
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Life insurance and its risks on the insurer and the insured

Consider a life insurance contract designed for independent workers who have little salary and are afraid to lose their retirement opportunity: for example, they will always be obliged to work even ...
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1 answer
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How to manage the money I got from "lump-sum housing lease"?

In South Korea, there is a concept called "jeon-se", which can be roughly translated into "lump-sum housing lease" or "long-term rental deposit". It goes like this: An ...
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2 votes
1 answer
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Full investment in Forex with no leverage vs partial investment with high leverage

Assume two investors with $100,000 each, willing to invest them in Forex as scalp. Investor (a) Funds a brokerage account with the full $100,000 each trade is executed with the full $100,000. trades ...
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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?
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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 ...
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2 votes
1 answer
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Is this Money Market Fund giving negative yield?

I had a question about interpreting money market fund metrics that was answered here, but which raised a new question. Schwab SWVXX is a money market fund which has a Gross Expense Ratio of 0.34% and ...
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What are the risks for a Canadian opening a Delaware corporation?

I am a Canadian, living in Canada, born in Canada to one Canadian and one Canadian/American parent, which makes me an American "Person". This means I am responsible for filing and paying ...
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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, ...
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Does a high beta indicate a higher risk of bankruptcy?

I recently asked Should retail investors learn and use the capital asset pricing model (CAPM)?, where a good answer mentioned that "beta" is a rough measure of risk, measured based on the ...
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4 votes
2 answers
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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 ...
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5 votes
1 answer
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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 ...
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1 answer
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Is it better to invest FULL savings, in a home before marriage, or PARTIAL savings after marriage (50/50 contribution with spouse)?

My question is around the safety of my brother's investment (Washington State, USA) if shit hits the fan and his marriage falls apart. He is planning to buy a property now (huge investment) but our ...
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2 answers
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How would the discovery of El Dorado impact the price of gold? [closed]

I have gold in my long-term investment portfolio and I am worried about sudden over-supplies of gold. If a City of Gold (e.g. El Dorado) or the Nazi gold train is discovered in the future, how can I ...
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0 votes
4 answers
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Is it reasonable to split my money across two banks for security?

I am working to build an emergency fund, so I have money available in case I need it. I have read advice about keeping money split across multiple banks, for security. The idea is: if one of my banks ...
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1 vote
1 answer
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Is there a currency risk in UCITS ETFs?

I'm interested in buying ETFs that track the US market, but because of the latest EU MiFID regulations, I'm only allowed to purchase investment products that come accompanied by some "KID", a Key ...
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5 votes
1 answer
498 views

Minimize risk of losing a lot of value for your savings during the corona crisis [closed]

Which investment possibilities are there for minimizing the risk that your cash savings (for simplicity let's say 100,000$) will severely lose value during the corona crisis? The focus is on avoiding ...
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1 vote
4 answers
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Pensions and personal circumstances, assessment and alternatives

Pensions are very popular financial products, and are quite strongly encouraged, both through favourable tax laws and employers contributions. In all cases I am aware of, neither the contributions ...
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2 votes
1 answer
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What happened to LTCM (Long-Term Capital Management)?

I recently learned about the LTCM fiasco and I find it ludicrous. From Wikipedia: Initially successful with annualized return of over 21% (after fees) in its first year, 43% in the second year and ...
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0 votes
0 answers
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Are uninsured financial institutions riskier places to keep my wealth, now that cryptocurrencies make embezzlement easier?

Suppose that one or more high-level officers at a stock brokerage, or other retail financial institution, decide to embezzle most of the assets held there. The embezzlers liquidate the assets into ...
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66 votes
10 answers
13k views

If a broad long-term investment in the stock market is such a good deal, why don't banks do the "obvious" things?

There is a fundamental discrepancy or paradox that has been keeping me, and many others, away from the stock market. Before I explain it, let me mention some selected popular questions on this site in ...
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1 vote
4 answers
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Is it true that you can't take money out of the market using only risk management?

Is it really true what a lot of traders say: that in order for you to make money in the stock market it suffices to use risk management? For the following reasons, I think it is not true: Suppose ...
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1 answer
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Stock market fluctuations and when to sell out [duplicate]

I recently bought a medical marijuana stock at its lowest point. It is estimated that it will reach a high price by 2023. How can I know for sure when to sell out?
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2 votes
1 answer
187 views

Outsourcing rental risk: selling right to rent house?

I am wondering whether there is a way to get rid of the risk associated with renting a property one owns by selling the right to rent that property for a certain period? I am especially interested in ...
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0 votes
0 answers
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Options trade - statistically expected return calculation?

I also asked this question here, for it to get more visibility. I am calculating expected return for composite option strategies based on event probabilities provided by the broker. For example, ...
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3 votes
3 answers
665 views

Should we consider real estate investment low, middle or high risk?

Should private investors investing in a specific (that is, not through some fund) real estate treat it as low, middle or high risk? Issues I consider: It's true that things move slowly in real ...
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2 votes
3 answers
373 views

Best way to cash-out for passive income

First, my investing knowledge is very limited (still new to this, still learning). Second, my question is somewhat unfocused, sorry about that but I hope that there is a somewhat concrete answer, ...
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0 votes
2 answers
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Forward contract hedge and market-maker

Referring to McDonald's Derivatives Markets book, a market-maker or arbitrageur must be able to offset the risk of a forward contract. It is possible to do this by creating a synthetic forward ...
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1 answer
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U.S. 10 year treasury bonds behavior during crisis

It's often advised to buy and keep government bond to protect ourselves against the next upcoming crisis. (For example, in a defensive stock portfolio you can have 50% of stock and maybe 30% of ...
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1 vote
2 answers
190 views

Risk management strategies for ETF portfolio

I have an ETF portfolio (MSCI World, Euro Stoxx 600) and I'm following a "buy and hold" strategy. But I would also like to learn more about risk management strategies. More precisely, I'd like to ...
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