Finance & economics | Buttonwood

How investors get risk wrong

Contrary to popular wisdom, more volatile stocks do not outperform

Illustration of a man pulling a dollar bill from under a bomb
Illustration: Satoshi Kambayashi

Hire a wealth manager, and one of their first tasks will be to work out your attitude to risk. If you are not sure exactly what this means, the questions are unlikely to help. They range from the inane (“How do you think a friend who knows you well would describe your attitude to taking financial risks?”) to the baffling (“Many television programmes now have a welter of fast whizzing images. Do you find these a) interesting; b) irritating; or c) amusing but they distract from the message of the programme?”). This is not necessarily a sign that your new adviser is destined to annoy you. Instead, it hints at something fundamental. Risk sits at the heart of financial markets. But trying to pin down precisely what it is, let alone how much of it you want and which investment choices should follow, can be maddening.

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This article appeared in the Finance & economics section of the print edition under the headline “Why risk it?”

From the March 9th 2024 edition

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