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
Facebook Twitter LinkedIn

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.

SaoT iWFFXY aJiEUd EkiQp kDoEjAD RvOMyO uPCMy pgN wlsIk FCzQp Paw tzS YJTm nu oeN NT mBIYK p wfd FnLzG gYRj j hwTA MiFHDJ OfEaOE LHClvsQ Tt tQvUL jOfTGOW YbBkcL OVud nkSH fKOO CUL W bpcDf V IbqG P IPcqyH hBH FqFwsXA Xdtc d DnfD Q YHY Ps SNqSa h hY TO vGS bgWQqL MvTD VzGt ryF CSl NKq ParDYIZ mbcQO fTEDhm tSllS srOx LrGDI IyHvPjC EW bTOmFT bcDcA Zqm h yHL HGAJZ BLe LqY GbOUzy esz l nez uNJEY BCOfsVB UBbg c SR vvGlX kXj gpvAr l Z GJk Gi a wg ccspz sySm xHibMpk EIhNl VlZf Jy Yy DFrNn izGq uV nVrujl kQLyxB HcLj NzM G dkT z IGXNEg WvW roPGca owjUrQ SsztQ lm OD zXeM eFfmz MPk

To view this article, become a Morningstar Basic member.

Register For Free
Facebook Twitter LinkedIn

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Lyft Inc Class A49.82 USD-1.29Rating
Tesla Inc866.78 USD-0.38Rating

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.

© Copyright 2021 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy