Risk: Just the Facts Ma’am!

How much risk is in your portfolio? Seems like a pretty straight forward question. Well…do you know how much risk you’re taking on or are you just taking a ride on the “Trust Express”

You’d think this is something most investors would be demanding to know. Yes, there is a mathematical formula that measures how much risk is in your portfolio. It’s called standard deviation and it measures how volatile your particular portfolio is. It absolutely blows my mind that there is so little talked about this vital measurement in the investment world. Most people have never even heard about it.

Here’s a 2 minute video with Dan Solin (one of his books is on our website recommended reading list) talking about standard deviation.

Solin gives some standard deviation benchmarks in the video. He’s pretty much right on. As point of comparison, here are some examples of standard deviation for a globally broad-based diversified portfolio’s, applying an academic design.

Conservative 6.50%

Moderate 10.50%

Growth 15.25%

Aggressive 19.00%

It’s impossible to have a successful investing experience if you don’t understand risk. It’s not always going to be smooth sailing in the investing world; there will be times when parts of your portfolio will have mundane earnings to out-right losses. Successful investors need to understand how bad the potential downside can be before it happens. This conversation must include standard deviation as well as the sleep factor (what a portfolio could lose during a market down turn); both items are to be thoroughly understood before investing one’s life savings??

About Paul Nichols

Paul is the founder of Financial Abundance, a Registered Investor Advisory firm and EDI, an Estate Planning Firm with offices in State College and Lewisburg. He has been working with individuals, families and businesses for over twenty years, including many Fortune 500 companies. He has educated tens of thousands of people through seminars, workshops and various international speaking engagements where he shared the stage with many notable individuals such as Ronald Reagan, Robert Kiyosaki (author of Rich Dad, Poor Dad), Mike Ditka, General Schwarzkopf, and Newt Gingrich to name a few.

In 2000, after many years of traveling to consult companies and individuals, Paul decided to relocate from Colorado to State College, PA (his wife’s hometown) to develop a local advisory firm.

Paul operates under the core belief that education plus understanding leads to clarity and confidence; resulting in peace of mind. He is a proud father of three and devoted husband of 20 plus years.

Some of Paul’s accomplishments:
Regular contributor to the Centre Daily Times, via the “It’s Your Money” blog
Featured in the movie Navigating the Fog of Investing
Regular contributor to Town & Gown as the publications Investor Coach
Host of the weekly iTunes Podcast, It’s Your Money
Member of the Western PA Better Business Bureau
Member of the Centre County Chamber of Business and Industry