Professor Ken French is one of the very best at explaining difficult concepts. In this brief video he tackles the topic of defining investment risk. The way he describes investment risk centers around the uncertainty of lifetime consumption.
Dr. French uses two disparate examples that we are all familiar with to show the positive and negative impacts of lifetime consumption uncertainty.
Risk is definitely confusing yet there are ways to reduce your lifetime uncertainty. The biggest takeaway from my perspective is how broadly he considers lifetime consumption. Not just normal spending but also gifts to kids, charitable gifts, and bequests.
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