When you have a portfolio of all kinds of fun security-goodies, you can calculate the “beta,” which is the overall risk your portfolio has (in comparison to the market, or to a set benchmark).
You can tinker with individual eggs in your basket to make your beta more or less risky. As people get closer to retirement, usually you want your beta to get less risky, which means closer to zero. When you’re at a beta of one, your risk is equal to the market, or your benchmark. Above one means you’re living on the edge, taking on more risk for the hope of higher returns.
A zero-beta portfolio is when there’s zero systematic risk, which is when your beta is zero. If you had a portfolio with a beta of zero, you could watch everyone rejoice at bull markets and weep in the corner during bear markets while your portfolio is completely unaffected by any of those market changes. This is good if you’re close to retirement, since that’s not the time to be playing with the potential to lose a lot of money, which you’ll need as your income.
So how is the zero-beta portfolio achieved? You can balance things out by pairing together a mutual fund or ETF with a bond fund that has a negative beta. Don’t forget: a portfolio could include “alternative” securities like real estate and land, which are safe from stock market fluctuations, and futures contracts, which can help an investor hedge bets on the market. Living the zero-beta-portfolio life may be a boring ride, but it’s a green pasture if the rest of the economy turns into a desert.
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Finance: What is Volatility?77 Views
In finance allah shmoop what is volatility beta this thing
that's the symbol for volatility on the street we mean
the wall one not the mean one and it is
so commonly used that the in crowd members just say
beta when they're referring to volatility unless they're from tennessee
in which case they say you ve all y'all all
right so here's a siri's of stock prices stamped each
day that has lo ve all or low beta and
here's a siri's that has high beta dead man's pulse
versus rocky mountains Well what makes a stock volatile uncertainty
Think about it this way If everyone knew for sure
what a given stocks earnings would be for the next
ten years quarter by quarter and they also knew what
the overall markets average earnings would be in a few
other things like revenue growth and world conditions and we're
going to be war inflation there wouldn't be a lot
of guesswork The quote right unquote price today would be
thirty two dollars eighty three cents and the quote right
unquote rate of compounding would be eight percent in the
stock would slowly go up but this rate but in
non disney land riel life well nobody really knows much
of anything So stockcharts look like this and nerve endings
of wall street traders look like this Neither of them 00:01:19.771 --> [endTime] looked much like this chart So that's all you
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