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How to Determine Portfolio Risk

Diversification is usually the biggest safety consideration investors take into account when building their portfolios.

You may have heard that building a portfolio takes three essential items: diversification, diversification, diversification. This concept is certainly an essential part of managing portfolio risk, but there are a few other key aspects of risk that don’t receive enough attention.

Volatility is part of the risk equation and isn’t addressed through diversification alone. How a stock, or even an entire portfolio, performs over time can vary dramatically. Aggressive investors looking for higher gains and willing to take on higher risks will see higher swings in prices than conservative, risk-adverse investors.

If this all sounds overwhelming, there’s good news: figuring out how exposed you are to various risks is easily calculable and doesn’t require a background in finance or mathematics to execute properly.

Be sure to check our Portfolio Management Channel to learn more about different portfolio rebalancing strategies.

Understanding What Risk Really Means

Assessing Risk Using Beta

Guarding Against Unwanted Risks and Returns

The Bottom Line