1/ The most common mistake with risk is NOT differentiating:
personal, unique risk
FROM
collective, average risk
2/ Personal, unique risk arises from things that are unique to you.
For example, personal financial risk is what incurs to you because of your peculiar investments. Maybe you picked certain stocks or invested in a “hot” property
3/ Contrast this to the collective and average risk of the entire nation’s economy tanking or a bank tanking and wiping savings of millions of people like you.
4/ Usually we end up conflating these two types of risks in our minds.
Many people don’t invest in equities because it’s too risky.
Yes, it’s risky but in a collective and average way, not a personal and unique way
5/ Protecting against collective risks is an exercise in vain because the collective risk is never eliminated, it’s simply gets shifted somewhere else
6/ Collective risks are less worrisome because collectives of people want status quo
So on the realization of such risks, you can take comfort in the fact that there are millions of other concerned folks who will protect the negative impacts of risk for you
7/ Case in point: the 2008 financial crash in the US.
At that time, everyone thought the world economy was in ruts and that people lost money.
Fast forward to today and thanks to bailouts, after the dip, here’s the US stock market performance. ... Read the entire post โ