Tuesday, January 21, 2014

Investment Risk at the Portfolio Level Trumps That at the Individual Position Level

The risk related investment mistake that I think costs people the most money is thinking of risk as an isolated quality of an individual investment. What should matter to investors is the risk of their portfolio, not individual investment risk.

I don't accept that the sensible way to look at USA treasury bill risk is the same if I have 90% invested in treasury bills and am looking at what to do with the last 10% of my portfolio (or if I have 60% in USA index funds, 20% in REITs and 10% in global index fund). Putting that 10% in treasury bills in the first example is likely riskier than putting it in USA index fund, while in the 2nd example is likely a very good move to reduce risk.

Comment on: Risk doesn't get as much attention as it deserves in investing

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