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What is a risk budget and why is it important
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STRATxAI

June 2024 · 5 min read

Getting started with your risk budget

Research

You have the money to invest and now you need to decide what to invest in. Once you have identified the type of investments (cash, bonds, crypto, currency etc) you will next need to decide what portion of your money to invest in each. This decision will be influenced by how much risk you are prepared to take. This is where a risk budget comes in.

In summary, a risk budget is a method of asset allocation that combines an investor's financial goals, with their risk tolerance alongside the choice of available investments.

How to create a risk budget

There are a few key steps to creating a risk budget:

  • Decide what your overall risk metric is
    eg. ‘annual volatility percentage’
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