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Should We Always Avoid Risk?

Should We Always Avoid Risk?

If you look-up the word “risk” in the dictionary, you’ll find its synonym: danger!

But should we always avoid risk and is all risk dangerous?

Prudent risk is desirable.

The word prudent has two synonyms: careful and wise.

Prudent Stock Investing

Most folks would agree that investing in stocks is risky.

But does that mean investing in stocks is dangerous?

If you were to take all of your money and invest it in one stock that was just listed on a stock exchange, that would be considered extremely risky by most people.

On the other hand, if you were to take all of your money and invest it in 12,000 stocks with different characteristics in roughly 45 countries all over the globe, in general, that would be considered a prudent risk.

In the first case, the investor employs no diversification.

In the second scenario, the investor implements diversification.

What about a 65-year old retiree who has all of his retirement savings invested in an account where his money is guaranteed against loss, but the rate of return is less than 3%.

If the retiree’s account has a billion dollars, it could be considered prudent because he has so much money, right? He doesn’t need a competitive rate of return.

But if the retiree has less than $1,000,000, the safety of a guaranteed rate of return could end up being risky because his money will not keep up with inflation.

In short, his purchasing power will erode over time.

What about jobs and risk?

People typically associate getting a job as a safe path and venturing into business as a risky one when it comes to earning an income.

We believe that most decisions in life are risky. The risks we assume individually only differ in the choices and outcomes we want for our own lives.

If you’ve been thinking about leaving the risk of holding a job and not realizing your dreams, feel free to check out how we’re pursuing ours.

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