Value at Risk (VaR): Overview, Pros and Cons, Example

By Kristi Waterworth – Updated Jul 24, 2025 at 1:45 PM EST | Fact-checked by Frank Bass

Key Points

VaR helps quantify investment risk by modeling potential losses in portfolios or stocks.
Three main VaR methods are historical, variance-covariance, and Monte Carlo simulation.
Using VaR with other models helps assess if an investment's potential reward outweighs its risk.

Buying stocks and building a portfolio always comes with risk – but often, that risk is unspecified. For some people, who need to know more about what they're putting on the line, a statistic called value at risk (VaR) can help them better quantify what's at stake. Read on to learn more about this value.

Loading paragraph...

A blue sign that says Risk Ahead. — Image source: Getty Images.

Loading image...

Loading paragraph...

Related investing topics

Loading paragraph...

The Definitive Guide: How to Value a Stock

Valuation is a huge determinant of whether to buy a stock. Here's how to calculate it.

When to Sell Stocks -- for Profit or Loss

When is it time to exit your position in a stock? Consider these factors.

How to Calculate a Default Risk Premium

The risk of default is an important factor in determining the interest rate of a loan or investment.

How to Calculate a Monthly Return on Investment

Monitor short-term returns for portfolio insight. Calculate monthly returns accurately. Emphasize long-term success in investing.

Loading hub_pages...

Loading paragraph...

About the Author

Kristi Waterworth has been a contributing real estate and financial expert at The Motley Fool, covering real estate, investing, and personal finance topics, since 2020. Kristi has been interviewed by various TV media outlets and podcasts for her real estate investing expertise – from residential real estate to digital real estate and everything in between. Kristi’s journalist career spans over 25 years, and she has written about real estate investing, homeownership, and home construction specifically for the last decade. She was also previously a licensed Realtor and general building contractor before the Great Recession and housing market collapse. She holds a bachelor’s degree in American history from Columbia College in Missouri.

TMFMaldivesBlue

@MaldivesBlues

The Motley Fool has a disclosure policy.