We have discussed risk and return in the textbook, so by now
you should have a grasp on the concept of financial risk. A recent
article notes that ultra-wealthy individuals have been moving assets into
cash or cash alternatives. In the first quarter of 2019, high-net worth individuals
held nearly 28 percent of investable assets in cash. And while cash itself is
desirable for liquidity and diversification, this number appears high. There is
one sentence in particular we would like to point out:
“Yet perception of risk is an emotional thing.”
We can measure an asset’s total risk by standard deviation,
or an asset’s market risk by beta. However we measure risk, it is unemotional.
But there can be behavioral factors, such as the fear of risk, that can affect an
individual’s decisions.
As a final point, the article discusses a family that moved
money into gold bars and buried them and implies this is moving assets into
cash. While gold is a physical asset and often performs well in a bad economy,
the volatility of gold prices can often be quite high.
