Sure, but that risk is less than if we just measured stocks individually. We get a different measure if we apply risk to both the person that needs the money and the person that does not. You are now making my point that the risk is not independently evaluated.Investing the asset any which way has no risk based on the risk measure of impact to the ability to meet one's needs. There then may be other risk measures the investor cares about that do distinguish investment choices for the asset. They have no impact on the investor's ability to meet his or her needs. But they may drive the investment choice for an aspiration.It is the portfolio that matters because that determines the consequences.
The risk to the donor is zero once they gift it. Their result is the same either way. The risk to the donee depends on their individual situation and how much they need the funds. If they have an inflation protected ladder covering all their needs for all their years then their risk from also having extra stocks is zero despite the variance in outcome. Much like applying for a raise and advancing over a career does not increase risk simply because there is a wider future range of outcomes. Just like volatility doesn't matter if our resources are big enough to overcome the variations.Suppose the investor sets up a donor advised fund. What should be the risk measure for that? The purpose of the fund is to make charitable contributions. The donor can no longer use it for themselves. They may invest it 100% in small value stocks hoping it will make a single big contribution when they die, but there is risk of it being worth less than was contributed. Or, they may prefer to see an organization get regular income while they are alive. It is gravy for the donee, which cannot depend on anything from it. But the donor may balance the risk of "going big" against the certainty providing stable income. This has nothing to do with the donor or donees needs, but boils down to how much risk the donor wants to take vs how much potential impact there could be.
The risk depends on the consequences of failure in each example. There is no independent evaluation of risk without considering the whole portfolio.
There is no "stocks are risky" without considering what stocks contribute to a portfolio and whether they increase or reduce risk.
Statistics: Posted by abc132 — Sat Jun 01, 2024 2:22 am — Replies 139 — Views 16068