Topic: Risk
11 posts tagged “Risk”.
What Insurance Is Really For
Money has three jobs — to save, to invest, and to insure. Each meets a different slice of an unpredictable future. Insurance is the one built for the rare, severe shock you could never fund yourself.
Insure Only What You Can't Afford to Lose
The single rule that sorts almost every insurance decision: transfer the risks that would ruin you, and quietly carry the ones that would only sting.
Self-Insure the Small Stuff
Not every risk is worth a policy. Small, affordable losses are cheaper to carry yourself — through a buffer and a sensible excess — than to insure away at a premium that includes the insurer's costs and profit.
The 300-Year Story Behind Your Premium
Insurance works because of two ideas borrowed from mathematics — a table of who lives and dies, and a law that says crowds are predictable even when individuals are not. Peter Bernstein told their story in "Against the Gods."
Don't Over-Concentrate
Many professionals unknowingly bet their retirement on one or two things — a home, an employer's shares, a single market. Diversification across genuinely different return drivers is the closest thing investing has to a free lunch.
Sequence-of-Returns Risk
Two retirees can earn the very same average return over the same years and end up worlds apart — because the order of those returns differs. A bad run early, while you are drawing an income, can be the difference between a pot that lasts and one that runs dry.
Inflation Is the Silent Risk
Nominal numbers look safe; real spending power quietly drains away. Over a long retirement, modest inflation can halve what your money buys — which is why an all-cash retirement is itself a risk, not a refuge.
The Three Real Risks
In retirement the danger is not day-to-day market wobble. It is inflation eroding spending power, longevity outliving the pot, and sequence-of-returns — a bad run early on. Name the real enemies and you can plan for them.
The Distribution of Outcomes: What Risk Really Means
Taking more risk does not simply shift your return higher up a straight line. It widens the range of possible outcomes — and fattens the bad tail. That shape is why position sizing and diversification matter.
The Real Risks in Growth Investing
Most investors confuse a bumpy price with real danger. The risks that actually destroy capital in growth investing are paying too much, a moat quietly eroding, and management misusing cash.
Risk Is Not Volatility. Risk Is Ruin.
Academic finance equates risk with volatility. Howard Marks argues that is a category error: real risk is the permanent loss of capital — and it is often highest precisely when markets feel calmest.