Boss: The risk gauntlet

What you get asked

1. Boss round! Your global index fund is down 28% in a crash. What is that, in risk language?

   Volatility is the ride shaking, not breaking. For a broad fund, the loss only becomes permanent at the moment you sell into it.

2. A portfolio falls 50%. What percentage gain does it need just to get back to even?

   Halved money must double: the recovery climbs from a smaller base. This asymmetry is why deep losses are disproportionately expensive.

3. Match each league-two idea to its essence

   Four traps from three units: correlations spike in panics, long duration amplifies rate moves, overlapping funds fake diversification, and withdrawal-era crashes bite deepest.

4. Why did 'safe' bonds fall double digits in 2022?

   The see-saw at full force: fast hikes off a zero start, long durations, no coupon income to soften the fall. 'Safer than stocks' never meant 'cannot fall'.

5. The only free lunch in investing is ___.

   Mixing imperfectly correlated assets lowers risk without a matching cut in expected return: Markowitz's free lunch, fine print included.

6. Final boss question: which of these can you CONTROL as an investor?

   Markets, crashes, and rates answer to no one. Fees, spread of bets, and staying calm in drawdowns answer to you, and league two just handed you all three levers. Gauntlet cleared. 🐜

The rest of this unit

Fees, frictions, and tax drag: the leaks you can control.

• The fee iceberg
• Fees compound too
• Tax drag basics
• Churning: activity as the enemy