Investment Insights
January 21 2019

Not Good or Bad Risk, Just Low Risk

15 min read

Yuriy Bodjov, CFA, Vice President & Director, TD Asset Management

“Risk is good”. For some time up to 2001, that quote was used in ad campaigns by a leading risk consulting company to promote its services. The underlying assumption was that by taking measurable risk, investors would gain higher returns. Unfortunately, that wisdom failed to materialize in the subsequent tech crash, although it handsomely helped the abovementioned consulting company’s bottom line. Since then the narrative around risk has changed, suddenly equity investors learned that there were two types of risk: good and bad. Naturally, bad risk was to be avoided, but taking a good risk was okay; as it would eventually lead to higher returns. That’s what active equity managers should do! But how can one determine which risks are good and which are bad?