Never gamble unless you can afford to lose.
That is essentially the message of a small but growing chorus of academics and financial advisers, who are calling for a new approach to managing investment risk in the wake of the two bear markets and unprecedented market volatility of recent years.
The current rally in the Dow Jones Industrial Average notwithstanding, they believe individual investors should shift their focus from how much money they hope to make in the markets to how much money, if any, they can afford to lose.
The process involves distinguishing your needs from your wants so that you can determine the amount of market risk that is appropriate for you to take, or what Zvi Bodie, a finance professor at Boston University, calls your “risk set point.”
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