Image by Nattanan Kanchanaprat from Pixabay The dimension with which we measure the risk of an investment asset and, by extension, of an investment portfolio (which is the set of financial assets in which you invest) is volatility. As we have seen on other occasions, volatility cannot collect all the risk, but a significant part, and it is also the standard measure that allows us to know how risky an asset is compared to the market average or other assets. A well-diversified investment in stocks usually has around 20% volatility and fixed income (mainly sovereign fixed income) around 5%. From there we can compare. Those of us who started investing before the last great crisis have the psychological anchor of this one, and the great drops (drawdowns) and their prolongation in time are always very present in our minds. It is what destroys personal psychology from a financial point of view and what makes you quit. The great crises mark generations and establish guidelines of good sense and caution that are absolutely necessary for the operation of a personal investment system that lasts a lifetime. This has the problem that we bias ourselves towards the risks that may occur and build investment portfolios…
