What Exactly Is Risk: Part II
Today concludes our two-part feature that aims to define risk. Not being able to do so is a problem for both advisors and investors.
Alternative Definition of Risk
Risk can also be defined as the probability of not achieving your financial objective – with the objective generally being not the accumulation of the greatest wealth, but instead, having sufficient wealth to allow for the maintenance of an acceptable lifestyle (and not run out of funds while still alive). It’s important to note that the expected return of a portfolio should never be considered as a single point, but instead, should be considered as a potential distribution of outcomes. The use of a Monte Carlo Simulator can help with estimating the risks (odds) of failure.
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