People are usually saying, no risk no return. But I am saying If you don’t know the risk associated with the investment, sometimes you assumed all the risks without the return. I had a painful experience when I invested a lot in gold without knowing its real risk. The price is volatile and it doesn’t pay dividend. It is a speculation and I eventually lost big to learn a huge lesson.
People are buying investment based on their perception of return and sometimes ignored the risk or mis-assessed the risk. Risk is modeled in the financial term as volatility. It is the variation of the trade price over time. In statistics, it is measured by standard deviation. Intuitively to average investor, we can see some stock price jumping up and down, for example, TSLA, which can go from $200 to $2000 in one year and some other investment, like the money market fund, the price doesn’t move.
But if you don’t know the risk, sometimes, you assumed a much bigger risk than you thought. One example is investing in gold. People turned to use gold as a hedge. But often it is not true because there is no direct link of opposite performance. When people used gold to hedge 2016 US election market crash, it was a big fallout. But if you think the future for U.S. economy is good, you should keep investing in U.S. market with total understanding of price volatility and stay in the market. If you want to hedge the market risk, buying put option makes more sense than buying gold.
如果你不明白投资的风险，有时候你背负了比你想象中大很多的风险。一个例子是黄金。人们希望用黄金来对冲市场崩溃，但是这常常是不对的, 这两者并没有直接相反的关联。当人们用黄金来对冲美国2016选举产生市场崩溃，结果是非常错误的。如果你认为美国市场长期看好，你应该持续投资并且长期持有，如果想要对冲市场，买put option比买黄金更直接。