What is Portfolio's Beta?
Posted on . 2 min read
Stock market is down by 1%, but why is my portfolio down by 2%? 🤯
The answer is your portfolio beta is high! ⬆️
So, what is Portfolio Beta (β)? 🤔
A portfolio's beta (β) is used to measure how risky the portfolio is compared to the index (usually the S&P 500).
For example, if the portfolio's beta is 2, it means that if the stock market goes up by 1% then the portfolio will go up by 2% and vice versa.
β > 1 means your portfolio is more volatile than the index. You're taking an aggressive approach. ⚡⚡
β = 1 means your portfolio is as volatile as the index. Its better to switch to Index Funds/ETFs 🧘🧘
β < 1 means your portfolio is less volatile than the index. You're taking a conservative approach. 🔰🔰
-ve β means your portfolio moves in the opposite direction of the index. ⬇️ ⬇️
What is a Good Beta (β)? 💝
A good beta for you is based on your risk appetite and your goals. 🎯
If you wish to replicate the market performance, buy an Index Fund/ETF. 🧘
If you are conservative and want to preserve the principal, a lower beta portfolio might be ideal. 🔰
If you are aggressive and want to generate market-beating returns, go for a higher beta portfolio 🚀. But be tolerant and patient when the market goes down as your portfolio will even go down further. 🔥
How to calculate Portfolio Beta (β)?
Don't worry, that's on us! :) 🚀 Check Xillion's Portfolio Analyzer 🚀