Investing · Module 2 of 11
What risk actually is
What risk really means, why higher returns come with bigger swings, and how much ups and downs you can live with.
Key terms in What risk actually is
- Risk tolerance
Risk tolerance is the amount of investment risk a person is both willing and able to accept in pursuit of a financial goal. It combines temperament, meaning how losses feel, with circumstances such as income stability and how soon the money is needed. Regulators note it is central to matching a portfolio with a person's goals and life situation.
Source: FINRA, Risk
- Risk-return tradeoff
The risk-return tradeoff is the principle that investments with a higher potential reward generally carry a greater chance of loss. Over long historical periods, stocks have delivered higher average results than corporate bonds, and corporate bonds higher than Treasury securities, but with more severe declines along the way. Past averages describe history and do not predict any future outcome.
Source: FINRA, Risk
- Margin account
A margin account is a brokerage account that lets a customer borrow money from the firm to buy securities. The customer deposits part of the purchase price and the broker lends the rest, using the securities as collateral. Borrowing this way magnifies both gains and losses, and losses can exceed the amount originally deposited.
Every term on Lever is in the money glossary.
About this module
What risk actually is is part of Investing, one of 15 subjects in Lever. It’s a short run of 9 lessons, about 23 minutes in all, so you can finish it in one sitting.
Every lesson takes one idea at a time. You read it with the math worked out step by step, answer a question that puts it to use, then see why the right answer is right and why the others aren’t.
It’s for anyone who was never taught this, and you don’t need to know anything first. Every lesson is free. Lever works out what you already know, so you can start here or let your path bring you to it.
More in Investing
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1
Why money cannot sit still
Why cash slowly loses value, what it means to put money to work, and which money shouldn’t be invested at all.
7 lessons -
3
What you can actually own
Stocks, bonds, funds and index funds explained, plus the yearly fee that never sends you a bill.
10 lessons -
4
Actually starting
Open the account, start small, invest a set amount on a schedule, and keep an eye on fees.
7 lessons -
5
The days you cannot pick
Why staying invested usually beats trying to time the market, and why the latest news is a poor guide.
5 lessons -
6
The account with a tax break
Retirement accounts with tax breaks, free money from an employer match, and paying tax now or later.
5 lessons -
7
Limits, locks and deadlines
How much you can put into tax-advantaged accounts, the cost of taking money out early, and the deadlines to know.
6 lessons -
8
Moving it and naming it
What happens to your retirement account when you change jobs, and accounts meant for one specific purpose.
5 lessons -
9
Spending what you saved
How much you can take out each year in retirement without running out, and why the order of good and bad years matters.
5 lessons -
10
The mix that shifts
Choosing your mix of investments, rebalancing when it drifts, and all-in-one funds that do it for you.
7 lessons -
11
Choosing where it goes
Which account to fill first, which investments to keep where, and how to do it all if you work for yourself.
6 lessons
Try this module
It’s part of Investing. Lever will bring it to you when you’re ready, or you can go straight there.