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Redefining risk

August 23, 2018

Risk has many “official” definitions, descriptions and measures including standard deviation, alpha, beta, volatility, and coefficient of variance but I reject them all in favor of one question you need to answer for yourself before making any investment.

Can you survive the loss if it turns sour?

If yes, then it can be considered. If no, then it should never be considered since it would be too risky.

Reducing risk can be done with sensible diversification and with putting a limit on what you will invest in any one issue or security. Additionally, establishing a plan based on your long term goals is another way to reduce risk since the plan provides a lens that focuses your investments toward the right objectives.

For further information, you can read a blog I posted giving 23 types of risk and how to protect yourself from each one. Here is a link: https://partners-network.com/2015/09/24/23-investing-risks-and-how-to-protect-yourself/

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