What Is Risk-On Risk-Off?
Risk-on-risk-off investing relies on and is driven by changes in investor risk tolerance. Risk-on-risk-off (RORO) can also sway changes in investment activity in response to economic patterns. When risk is low, investors tend to engage in higher-risk investments. Investors tend to gravitate toward lower-risk investments when risk is perceived to be high.
Key Takeaways
- Risk-on risk-off is an investment paradigm where asset prices are dictated by changes in investors’ risk tolerance and investment choices.
- In risk-on, investors have a high-risk appetite and commonly drive up some asset prices.
- In risk-off situations, investors are more risk-averse and sell assets.
High-Risk vs. Low-Risk Investments
Investors’ appetites for risk rise and fall over time. Risk is the uncertainty associated with investments that may negatively impact a financial portfolio. Because younger investors have a…
