"Uncompensated risk" refers to a situation where the potential downsides or negative consequences of an action or investment are not adequately compensated or rewarded. It means taking on risk without receiving any benefit or compensation in return.
Full definition
«Passive investing is, however, the best way to rid a portfolio of as much
uncompensated risk as possible (and the only way of eliminating the risk of underperforming a given financial market.)»
«Passive investing is, however, the best way to rid a portfolio of as
much uncompensated risk as possible (and the only way of eliminating the risk of underperforming a given financial market.)»
You shouldn't in individual stocks, sector funds or country funds because they contain idiosyncratic risks that can be easily diversified away and thus are what economists
called uncompensated risks.
Although outliers do exist, if you feel the need to tilt your portfolio toward a certain sector it's best done with an index fund since it will
eliminate uncompensated risk.
By analyzing the historical returns for various asset classes, including stocks, bonds, private equity, real estate, and even precious metals, an investor can see the difference between compensated and
uncompensated risk over time.
Are you taking
any uncompensated risks?
«Stated differently, there are many academics who would say that buying individual stocks leads to people taking «
uncompensated risks», meaning they could likely get a similar return with a lot less volatility if they just diversified more — both within and throughout asset classes.»
Are you taking
any uncompensated risks?
Stewart Lawrence, senior vice president and head of the Retirement Practice at Segal Rogerscasey, commented on pension plans» significant exposure to interest rates: «The significant increase in funded status caused by rising interest rates demonstrates the typical plan's exposure to
the uncompensated risk of interest rate movements.
Even though I generally try and avoid investing in individual stocks due to
the uncompensated risk and my inability to pick winners, I know there are still millions of people who do it every day.
I'm not huge on investing in individual stocks due to
the uncompensated risk but as long as you're investing in solid blue chippers it's not the worst strategy in the world.