Taking risk

We all have a different view on what risk is. Given the same input, we come to a different conclusion. That is what makes discussing investing so beautiful.

The other day, I was talking to someone on my options trading. He did not like that at all, too risky. However, he had been trading turbo’s before. Now, that is what I call risky.

When I spoke to some seasonsed value investors on a local happening, I got a lot of pushback from some on my ETFs. To risky, unclear what you have.

Too often, people judge an instrument or strategy based on rumours, based on the lack of knowledge or worse: they are convinced their way is the only way.

Sadly, the same is true for the vast majority of the Belgian people. They do not invest. Too risky, too dangerous, look at 2008,… Dividend cake make a good summary of the current state in Belgium. When you only save, you loose money. Interest rates does not keep up with inflation these days. They loose money. And that is not a paper loss, It is a real loss of buying power, every year.

To me the real risk is run out of money so that I need to change my lifestyle. That would be a big drama. With investing, I have a change to do better.

People need more education on investing, on finance, on compounding interest and the danger of inflation. Despite all MIFID rules and good intentions of the regulators and government, we seem to be getting further away from the educational targets.

 

I do acknowledge that not everybody can save and invest. Some people have a hard time…

Kirsh-8158For those that make a decent living, consider living below your means, build up an emergency fund and invest the rest. Invest wisely, diversified.

I hope to contribute a little to the education with the blog, the blogroll and the talks I have with people on the subject.

How do you want to help?

 

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26 thoughts on “Taking risk

  1. We have noticed that so many people have the perception of the stock market as “day trading” only, they don’t even know the dividend strategy exists, buy and hold and watch it grow. So many Australians invest in property because they see it as the “buy and hold and watch it grow” asset class, it’s astounding how many people don’t realise you can do the same with the stock market, be more diversified AND have less responsibilities/expenses. Win Win Win for dividend investing in our opinion!
    Mrs DDU

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  2. Ciao ATL,
    Interesting topic. Risk is very very subjective, it’s something that derives from our experiences and mistakes, and probably also from the education that we have had. On investing risk is sometimes take because the investor doesn’t actually know what he/she ‘s doing, I am a huge advocate of having some sort of state “school” or “diploma” that need to be taken in order to invest. Too many players in the market are looking at maximizing their profits, not necessarily the one of the investor. This is why I decided to fly “solo” at the end, I cannot trust all the advisors too much… This inevitably means taking on risk, but on the other side the old adagio “Nothing ventured, nothing gained” is all so true especially in the financial markets. Nowadays I trade when I am comfortable with my choice of trading, sometimes there are “risky plays” other times more cautious ones. I guess that the dividend investing strategy that I follow is already pretty defensive, that’s why a small part of the PF goes in Options, to me this is a mix that “works”.
    ciao ciao
    Stal

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  3. Education is the key here and I agree with you that people need more education on investing, on finance, on compounding interest and the danger of inflation. Schools, financial sector (and also parents) do little in the total roadmap of a child. I can make this conclusion for many countries.
    We started with our first class last week together with the kids. Together with you, and other bloggers we can only spread the word and hope people pick up the learning and education that is required.
    Keep up the great work ! Risk is for every person different based on their education and financial knowledge.

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  4. Just yesterday we talked about how they will add some financial education to the curriculum at school and we think it is a good idea but also that the education provided most probably will be crap.
    Risk is indeed one of those things most people have completely wrong. Diversification is another one …

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    1. Often, risk is viewed as volatility… The whole industry is focused on the 1M, 1Y and 3Y return and the drawdowns in that period. Compare that to Warren Buffet… he focuses on long term and does way way better

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  5. Hi ATL,
    Contrary to saving and investing, people are brainwashed by Multi-nationals and media to consume, take 0% rated credits and to live today and enjoy today without thinking too much about future.
    Saving and investing is a painful process. You need to kill so many wishes, postpone so many wishes (that’s how people think), manage your investment and make sure they grow otherwise you will regret that you could have rather spent and enjoyed with that money which you just lost. I know a hell lot of people who think like this.
    We bloggers and savers and investors are strange people 🙂

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    1. Ciao Rico, great point! But I find it useful to be “reminded” of certain aspects of trading that although I think I know them they still keep being forgotten from time to time (and losses happen in that case..) so at least it’s useful for us! 🙂

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    2. I don’t see it as wasting your time. As a financial blog reader, Mr MM inspired me big time 4 years ago. There was a lot of things to learn at first. Why do I hang around if there isn’t much to learn anymore? I like to follow this FI herd. Great stuff to think and talk about.

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      1. I didn’t mean that reading financial blogs was a waste of time. I just question how many people we are reaching with our posts. I have been writing for 2 and half years. The feedback seems to come from the same bloggers.

        Liked by 1 person

  6. Risk is what you get compensated for. Especially downside risk. That’s why equities have high expected returns.
    That’s why our options trading strategy is profitable. In fact, one of the reasons those investments have attractive returns is that there are too many scared “Chicken Little” investors that don’t want to invest. More profits for the rest of us! 🙂

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  7. Interesting topic. Education is key and it feels like unless you teach yourself, no one else will teach you. Risk in the market is a given but so is anything you do with your money. If you had all your money in real estate back in 2008, you still would have lost a killing. At least with DGI investing, it compounds faster at those low levels giving you more growth. Even though the asset is decreasing in value, it is increasing in size. So when the market picks up, the extra size propels the value even further up.
    Also, when people ask me if I’m afraid of losing money in the market, I give them the same answer with two reasons. No, of course I am not afraid. One, you only have a loss if you sell. So long term, there really isn’t anything to worry about if your smart about it and stick with your long term strategy and don’t give into fear when everyone else is selling. Secondly, if I do take a loss (and sometimes I do on purpose), I get to write that off on my taxes. So I really didn’t actually lose. The loss was used as a benefit to my overall financial well being. Just need to educate yourself. The more education, the less risky the market feels. Thanks for sharing.

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  8. I feel like we all take calculated risks in life. A lot of people take the risk of going to college, leaving family and taking on debt in order to get a better job. Most of the time college works out but for some it doesn’t. I feel like it’s the same way with the stock market. Most of the time the stock market works well for some people while for others it definitely has not worked out as well.

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  9. as we already discussed, the risk scares me because of lack of knowledge. As far I am studying, the fear is going down.

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    1. good that you study. Weh you think of a subject that could help you, drop me a note and I could maybe write a post on it. I started an option course, maybe you can review?

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  10. Thanks to you, I understand more abotu option trading. I didn’t think it was very risky. I just didn’t understand the concept and (like everybody else who doesn’t know about this topic) was thinking of it as something complex, and weird.
    Once you understand it, you also understand the risks you’re taking and sudenly those risks become controlled. If, after you understand something, you still think it’s risky, then it probably is risky.
    See something new -> understand it -> understand the risk -> understand whether you can take those risks (worst case scenario) -> judge.
    This is the sort of thought process most of the people lack (sometimes I have prejudice as well, I have to admit).
    One of my most importan goals in life is to go back to my former school, or reach out to young people elsewhere and tell them as much as possible about what I’ve learned so far. Explain things that are important and that I’ve found risky/difficult at the beginning. If I can plant a good idea or erase a border in one kids’s brain to make him more successful and happy in life, I’ll be a very happy man!

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  11. Thank you for publishing this one, people really need to educate more about investing. I find this article/blog very useful, I can relate for I am currently handling my own business. They sometimes reject an idea or a certain product without a second thought once they realized that they would invest. I’m hoping for more articles like this or related to this. Thank you!

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