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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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,...
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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 ...
5 votes
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 ...
47 votes
9 answers
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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 ...
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1 answer
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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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Help me understand the risk of an indefinite halt to trading a security

Because of the indefinite halt to trading Russian securities in March last year, I want to understand this kind of risk better. Of the various non government entities like stockbroker, stock exchange,...
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2 answers
96 views

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 ...
1 vote
1 answer
135 views

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 ....
1 vote
1 answer
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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 ...
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1 answer
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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 ...
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1 answer
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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 ...
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2 answers
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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 ...
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2 answers
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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 ...
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2 answers
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how can you calculate the sweet spot for a risk / reward ratio in a partnership

Let's take 2 parties, A and B. A has a tool that can raise the value of an investment by a known quantity (Q) with an estimated risk factor (R). A failure would incur a loss of (L). B has money (M) ...
24 votes
11 answers
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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 ...
-1 votes
1 answer
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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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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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3 answers
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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?
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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 ...
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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, ...
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 ...
5 votes
6 answers
545 views

Should I invest everything in emerging markets ETF when I'm young?

Lifecycle investing is growing in popularity in the industry, where people in their 20s and 30s are invested into high risk portfolios (equities) and people approaching retirement are transitioned ...
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1 answer
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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 ...
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2 answers
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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....
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1 answer
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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 ...
2 votes
0 answers
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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 ...
4 votes
3 answers
404 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'...
68 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 ...
4 votes
1 answer
352 views

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 ...
0 votes
2 answers
119 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 ...
5 votes
3 answers
443 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 ...
9 votes
8 answers
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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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1 answer
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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 (...
1 vote
1 answer
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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, ...
3 votes
0 answers
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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 ...
0 votes
2 answers
162 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 ...
1 vote
1 answer
88 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 ...
2 votes
3 answers
255 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 ...
2 votes
1 answer
238 views

Constructive and relatively safe investment options

I'm a single, a grad student, and have some personal savings. Saving money is in my character, and for the last 5 years, I've been saving 1/8th of my monthly income, on average. In the future, I know ...
0 votes
5 answers
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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 ...
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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3 answers
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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 ...
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 ...
7 votes
2 answers
464 views

How safe are neo-banks?

In Australia there are a swath of 'neo-banks', banks that have no physical presence - typically are a 'mobile-first' experience. Some examples are Up, Xinja, 86400. These banks are typically pretty ...
0 votes
2 answers
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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 ...
0 votes
1 answer
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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, ...
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 (...
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 ...
5 votes
1 answer
742 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 ...
11 votes
1 answer
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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 ...

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