Manage risk, don't fear it

Morningstar's director of global ETF research, Ben Johnson, shares his favourite ETFs to fortify your finances

Ben Johnson, CFA 17 May, 2019 | 2:00PM

Investors have a love-hate relationship with risk. We feel warm and fuzzy about it when it works in our favor. We loathe it when it works against us. Ultimately, we are married to risk, for better or worse, until death do we part. We need to take risks to meet our investment goals. To do this effectively, we must understand the risks we take and how to manage them.

Systematic risk

Systematic risk is like gravity. It is a fundamental force that shapes everything around us. Also known as market risk or undiversifiable risk, it is typically the biggest risk that investors face. Systematic risk is driven by two key economic variables: growth and inflation. The long-term returns of virtually all assets (we'll set aside cryptocurrencies and Beanie Babies for now) are a factor of these two inputs. If the economy grows and growth translates to rising cash flows for companies, equity investors will be rewarded for assuming risk. If inflation runs rampant, bondholders will be punished.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Lyft Inc Class A44.69 USD-4.98
Tesla Inc800.03 USD-0.49

About Author

Ben Johnson, CFA

Ben Johnson, CFA  Ben Johnson, CFA, is director of global ETF research for Morningstar and editor of Morningstar ETFInvestor, a monthly newsletter.