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& investing risk? - H2
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Inflation
Interest rate
Cureency (exchange rate)
Market / volatility?
Liquidity - Funding liquidity + Market liquidity
Systemic: The risk that a company or industry level risk could trigger a major collapse (Investopedia definition)
Credit
Systematic: The risk inherent in the entire market, whcih can be economic, sociopolitical, technological, or natural in origen (Investopedia definition)
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The potential for an investor to experience losses or lower than expected returns
SEE CONTENT IN BEHAVIORAL INVESTING PAGE FROM GREG DAVIES WEBINAR - MUCH OF IT IS ABOUT INVESTING & RISK
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1. Inflation
2. Interest rate
3. Currency
4. Market liquidity
5. Market volatility
x
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1. Financial & global system
x
x
x
x
x
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Permanent loss of value - h4
Best definition of investment risk.
If value falls and sell before it recovers.
Not achieving your
personal goals - h4
The risk that realy matters. What will it mean for you if you don't achieve your personal goals?
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Howard Marks 'How to think about risk' videos. says volatility is not a suitable definition of risk, he defines risk as the probability of loss [permanent loss of capital]. Risk is not quantifiable in advance or in hindsight - risk is unquantifiable. Higher risk investments do not produce higher returns see video 8. With higher risk the range of possible outcomes increases - see chart in video.
Risk from the closely coupled financial system - covered in Ruffer - Something new under the sun aricle
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Should You Take? - H2
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Your pyscological tolerance
of risk - h4
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x
Your financial ability
to take risk - Heading - h4
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Watch video In Pursuit of th perfect portfolio Martin L. Leibowitz from 25mins onwards
How much secure income do you have compared to your outgoings? If your secure income is a high proportion it indicates you are able to take some risk. If it is low it indicates you are not able to take risk. If you have enough income without needing to take risk and you have no desire to pass money to others you probably don't need to take risk.u are able to afford to take some risk.
Have a contigency plan in advance - if your portfolio falls 20% or 40% what will you do?
Equities provide most of the risk.
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Sequence of Returns - h4
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Longevity - h4
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Main Asset Classes' Risks - H2
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Cash - h4
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Cash buffer
.Regular investing
Abiliy to defer selling
Long time horizon
Combine assets that behave differently
Diversify
Protected investments
Derivtives
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Interest rate
Currency
Economic
Systemic
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Economic & Equity risks - H2
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Shocks, Cr!ses and False Alarms
How to Assess True Macroeonomic Risk
Philipp Carlsson-Szlezak and Paul Swartz
Page 62: Recession typology and typical macroeconomic chart - figure 3.3
Chart showing recession types:
a. Real-economy recession
b. Policy induced recession
c. Financial recession
i) Median length of recession
ii) Median real per capital GDP drawdown
iii) Median equity market drawdown
chart below - saved as image
Three types of recession (book from page 51):
1. Recession-risk (p54)
2. Policy-recession risk - when montary policy slows the economy (p57)
3. Financial-recession risk - when problems in the financial system weaken the economy (p59)
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Shocks, Cr!ses and False Alarms
How to Assess True Macroeconomic Risk
Philipp Carlsson-Szlezak and Paul Swartz
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