How Much Investment Risk Should You Take?

January 3, 2019

Introduction

It is my personal finance research. I like to learn about investment risk, and how to correct my behavior. I am not sure if I can be better those year from 2001 to 2019, what makes me so afraid to make mistakes, and then let $20,000 US Dollar retirement fund not grow with US economy, since I chose to time the market, sell 15 years lowest time, and never considered to put back into the market, or spend one weekend to learn something from my own experience. How did I lose trust with USA economy, since my startup work experience with Siva inc?

Investment risk

Here is the article.

Not all stocks are equal

In order to get a good idea of how risky a stock is, take a look at its beta, which is a metric listed in most stock quotes. Basically, a stock's beta tells you how reactive it is to market movements. A beta greater than one means more volatility (riskier) and a beta of less than one means less volatility. For example, a beta of 1.5 means that, when the S&P 500 drops by 1%, that stock could be expected to lost 1.5%.

What is Amazon stock beta? 1.5
What is Facebook stock beta? 1.2

Other things to consider besides beta:

• History of profitability
• History of growth rate
• Current valuation
• Dividend history
• Sustainability of business

There is such a thing as too little risk

It's also important to mention that there is such a thing as too little risk. Even if you consider yourself to have no risk tolerance whatsoever, the best move is not to simply stick your money in a savings account -- inflation alone will erode your purchasing power.

Review the above statement:
too little risk 
no risk tolerance whatsoever
best move
stick your money in a savings account 
inflation alone 
erode your purchase power

4% inflation rate - consider inflation - learn about inflation

Historically, inflation has averaged just more than 3% per year. This means that if you stick $100 under your mattress, it will have roughly $40 in purchasing power in 30 years. At the bare minimum, your goal should at least be able to keep up with inflation, which even the most cautious investors can accomplish using long-maturity Treasury bonds, and similar investments that are virtually risk free.

Review the above statement:
3% per year - inflation 
average inflation 
$100 -> $40 in 30 years, lost 60%, 3% * 20 = 60%
bare minimum - keep up with inflation 
cautious investors
long-maturity Treasury bonds