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Navigating risks you don’t see: The failure of Silicon Valley Bank and the COVID-19 pandemic are two examples of risks that quantitative measures couldn't detect. Despite these challenges, what can you do to elevate investment risk management? Author Adam Grossman suggests the following:
📌 Don’t rely on a single measure of risk, but instead consider risk measurements only as part of a mosaic.
📌 Utilize history to better understand the character of risk (i.e. market downturns) – And, don’t dismiss any risk because everything has some probability, even if it’s low.
📌 Recognize that risk is personal. Some risks may have positive or negative effects depending on your circumstances.
📌 Maintain a balanced approach to risk evaluation using the mindsets of an optimist, pessimist, analyst, economist and a psychologist to help navigate the landscape of risk.
You have a unique personal risk tolerance and risk capacity. It shouldn’t be based solely on rules of thumb or simple measurements, but a variety of factors that paint your overall risk “picture”.