Risk Averse: What It Means, How to Measure It, and How to Invest Accordingly
Warren Team
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Key terms
- Risk ToleranceYour ability and willingness to lose some or all of your original investment in exchange for potentially greater returns. Depends on factors like age, income, and financial goals.
- Room and BoardThe combined cost of housing and meal plans at a college or university, which is a significant portion of the overall cost of attendance. Room and board costs vary depending on whether you live on campus, off campus, or at home, and the type of meal plan you select. Many colleges require first-year students to live on campus and purchase a meal plan.
- Sequence of Returns RiskThe danger that poor investment returns early in retirement can permanently deplete a portfolio, even if average returns over time are adequate. Withdrawing from a declining portfolio locks in losses and leaves less money to benefit from future recoveries.
- Living Below Your MeansA financial philosophy of spending less than you earn, creating a surplus for saving and investing. This habit is the foundation of building wealth over time, regardless of income level. It requires distinguishing needs from wants.
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