A Better Way To Think Of Risk
5-4-2021
Investment books mention the word "risk" a lot, but they seem to quickly introduce terms like beta and get rather wordy. While doing some other research I found that the Yahoo Finance section had information about a stock's best and worst years. I think the table below shows risk with nice simple numbers. How "risky" are stocks verses bonds? Check below.
Are you going to sell your stocks if the market drops 33% in one year? If yes, you should NOT have 100% of your portfolio in stocks. It has done this before, and will likely do so again.
How long is a long downturn? About 3 years it seems. Can your retirement account survive a 3 year period of time where it is still at -9%? If that is a problem, you should not be 100% in stocks.
| Ticker | Name | Worst 1 Year |
Worst 3 Year |
Since |
| VTSMX | Vanguard Total Stock Market Index Fund Investor Shares (US) | -37% | -9% | 1992 |
| VGTSX | Vanguard Total International Stock Index Fund Investor Shares | -44% | -7% | 1996 |
| VBMFX | Vanguard Total Bond Market Index Fund Investor Shares (US) | -3% | +1% | 1986 |