Crews Bank & Trust Blog

Less, but Still a Fat Tail Risk

Written by Samuel A. Kiburz | Oct 19, 2022

Today’s Chart of the Day from Bloomberg shows that though there are less nuclear stockpiles than the 1980’s, there are still too many. There is an increased focus on this topic due to Putin’s threats and a hope that someone would come to their senses before anything gets out of hand.

The probability of their use highlights a “fat tail risk,” which is defined as an unlikely event that falls outside of a normal distribution (three+ standard deviations) that would have significant consequences.

Salesmen often say they have ways to guard against these risks through complex and expensive financial products. After a deep dive of these products, we often find they add even more risk. In financial theory, the only true way to hedge against these risks is to invest in a low-cost, diversified portfolio which is already a cornerstone of our investment philosophy.