Mark Zuckerberg once said “The biggest risk is not taking any risk… In a world that is changing really quickly, the only strategy that is guaranteed to fail is not taking risks.”
Mastering risk is the key to exceptional investment returns.
We always try to measure the risk-reward before we make any investment but the reality is risk is omnipresent.
However, we must learn to live with it and minimise it as much as possible without limiting potential gains.
Believe it or not, you’re far more likely to die from cancer than from crossing the road!
With odds of 1 in 485 for crossing the road and 1 in 7 for cancer, it really puts things into perspective and highlights the everyday risks we often overlook.
Let’s examine some statistics on the odds of dying from various risks in the U.S.:
- The odds of dying from cancer are 1 in 7
- The odds of dying from a car crash is 1 in 93
- The odds of dying from a fall are 1 in 98
- The odds of dying from a motorcycle accident is 1 in 747
- The odds of dying from a pedestrian incident is 1 in 485
- The odds of dying from a bicycle accident is 1 in 3,546
- The odds of dying from a dog attack is 1 in 53,843
- The odds of dying from a plane crash is 1 in 11 million
(Source: NSC)
Clearly, dying in a plane crash is the least likely, yet many people fear flying more than driving.
Risk used to drive me insane, but after studying it extensively, I became comfortable with risk management.
I learned that the world is inherently uncertain and risk is everywhere. Taking no risks means winning no victories.
Life insurance companies insure us knowing that we will eventually die. It’s a risky business but if you know how to manage it effectively, it is no longer an issue.
The key is identifying which risks are worth taking and which are not—in other words, calculated risk-taking ensures survival during unexpected shocks.
In the investment world, no great return has been achieved without taking risks.
Even cash which is widely considered a safe asset is risky. In the last 100 years, the British pound has lost approximately around 98.04% of its purchasing power due to inflation.
Investing in Bitcoin in early 2009 was risky but now we have discovered not investing in Bitcoin early was more risky.
As the great boxer Mohammed Ali once said, “He who is not courageous enough to take risks will accomplish nothing in life.”
The question is, which man is happier, the one who has braved the storm of life and lived, or the one who has stayed securely on shore and has only existed?
It takes courage to do things that you are not comfortable with.
As Paulo Coelho beautifully put it, “Pitiful is the person who is afraid of taking risks. Perhaps this person will never be disappointed or disillusioned; perhaps she won’t suffer the way people do when they have a dream to follow. But when that person looks back – and at some point, everyone looks back – she will hear her heart saying, ‘What have you done with the miracles that God planted in your days? What have you done with the talents God bestowed on you? You buried yourself in a cave because you were fearful of losing those talents. So this is your heritage; the certainty that you wasted your life.’”
Today, we face risks from geopolitics, cyber-attacks, misinformation, disinformation, inflation, economic uncertainty, involuntary migration and pollution. With AI advancements, misinformation becomes an even bigger threat.
Risk is everywhere and will continue to be around us. If not the risks mentioned, it will be another form of risk—that’s just part of evolution. Our forefathers faced different kinds of risks but history teaches us that the safest path is not always the best path. As Helen Keller once said “Life is either a daring adventure or nothing.” At the end of the day, which is more fulfilling: a life braved in the storm or a secure existence on the shore?
Awet Ghirmay, Head of Investment Research
If you want to learn more about this topic, please find the link here.
More information about our fund can be found here: Hargreaves Lansdown or AJ Bell
Risk warnings
The value of investments and the income derived from them may fall as well as rise. You may not get back what you invest. This communication is for general information only and is not intended to be individual advice. You are recommended to seek competent professional advice before taking any action. All statements concerning the tax treatment of products and their benefits are based on our understanding of current tax law and HM Revenue and Customs practice. Levels and bases of tax relief are subject to change. This blog is based on my own observations and opinions.
