Unit 1 · Level 2 · What risk really is
Risk, reviewed
One: volatility is the ride shaking, permanent loss is the ride breaking. Two: recovery maths is cruel; lose 50% and you must gain 100%. Three: sequence risk means WHEN crashes land matters most when money is flowing out. Four: let the lower of capacity and tolerance set your risk. Nail these and you already understand risk better than most.
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What you get asked
Match each unit-one concept to its essence
Four gauges on one dashboard: how bumpy, how deep, how badly timed, and how much you can objectively afford.
A friend says 'stocks are risky. I lost money in the 2020 crash.' She sold her index fund that March. What really happened?
The fund itself recovered within months. The loss came from the exit, not the asset. Volatility became permanent only at the moment she sold.
Selling a diversified portfolio at the bottom turns a paper loss into a ___ one.
This is the unit's core sentence. Markets create drawdowns; investors create most permanent losses themselves.
Why does a 30-year-old saver need to worry LESS about sequence risk than a 64-year-old?
Direction of cash flow decides everything: money flowing IN turns crashes into discounts, money flowing OUT turns them into forced sales.
Tomas has high capacity (stable job, 25-year horizon) but panic-sold in every past dip. What's the honest move?
The best portfolio on paper is worthless if he abandons it at −30%. A portfolio he can hold beats a 'better' one he'll sell; the lower gauge sets the limit. 🐜
The rest of this unit
Swings, crashes, and stomachs: telling temporary pain from permanent damage.