Value at risk (VAR)

VAR attempts to assess the odds of losing money on a portfolio of, say, shares. There are three key inputs.

First, a confidence level – nothing about the future is ever known with absolute certainty, but VAR tries to offer 95% or even 99% confidence. Next, there’s a time period – this could be a day, week or month. Finally, there’s an estimated worst-case loss.

The actual calculation is complex and can be done several different ways. But the conclusion is typically similar, for example, “I am 99% confident that if I invest $1m now I will not lose more than 7% of it by the end of the day”.

Sadly, there is always a small chance of a random ‘black swan’ event occurring (such as a stockmarket crash). If your VAR model fails to build that in, you could end up losing a lot more.

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Which investment platform?

When it comes to buying shares and funds, there are several investment platforms and brokers to choose from. They all offer various fee structures to suit individual investing habits.
Find out which one is best for you.