Risky Business

Factoring Risk into your Portfolio

by Kalei Cadinha-Pua’a With markets rebounding more than 50 percent off the bottom this year, it’s easy for investors to be seduced by encouraging perfor- mance and the possibility of doubling returns. But it’s during markets like these that inves- tors often forget a critical component in the architecture of their portfolios: risk. Failure to understand risk is a concern in today’s volatile markets. A few simple pointers may help you keep risk at bay. Many investors assess risk based on beta (ß), an indicator of volatility. Beta compares the volatility of a specific asset to the volatility of the overall market. An asset with a beta higher than that of the market is usually considered riskier than one with a lower beta. In most cases, this is a reliable indicator of risk. However,while beta is an important indicator, it isn’t enough by itself. What if the beta measures of an asset and the market both go down? Investors should consider other factors, such as liquidity and valuations, when assessing risk. Click here to read the complete article

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