Would you consider racing 100mph over a curvy mountain pass on a moonless night in the dead of winter risky? Of course you would.
What if the person driving is an experienced stuntman who’s just finished filming a James Bond movie in Siberia? Less risky, right?
The same reasoning applies to investments and investing strategy. Most people think investing is risky because they lack the education and experience to mitigate the risk, and therefore, for them, investing is very risky.
What’s funny, and not so much in a ha-ha way, is most people who invest their money rely on someone else to do it for them in the least controllable and therefore riskiest asset class, paper, because they haven’t become financially educated enough to invest in asset classes, or formulate their own investing strategy, that offer more control.
Control is the opposite of risk, and many people believe they are in control when in fact they’re walking a tight rope strung over a lava pit on a very windy day.
Consider these commonly considered safe havens.
- Job Security
Job security has become less of a household phrase, but for those who seek job security find that many low paying jobs are moving over seas while technology supplants the higher paying positions at home. Not to mention that when taxes rise, employees are hit the hardest.
- Saving Money
In 1971 when money became debt, paper money lost all security. Currently, in order to keep people employed and exports cheaper, our governments are weakening the purchasing power of money. Why would you rely on savings when its value is uncertain, if not dropping?
- Safe Investments
Here’s an easy one. There are no safe investments; there are only intelligent investors. You can lose money in anything, which is why it’s essential to first invest in your education before investing your money.
- Debt Free
You may have paid off your student loans and credit cards, but no citizen of this country is debt free. We are all responsible for paying off our national debt – a small sum of $75 trillion – and that repayment affects what we get to take home. Big time.
- Mutual Funds
Mutual funds are really only good for the companies that sell them, not for the individuals who invest in them. They’re designed for people who don’t know what to do with their money and feel more comfortable passing it over to someone who “does.” Unfortunately, the investor takes 100% of the risk, has miniscule amounts of control, and often pays fees to the fund manager to handle them. Also, taxes are not nice to mutual funds.
- Diversified Portfolio
Many people believe they have diversified portfolios, but often they are only invested in one asset class – paper. So while they may have diversified holdings within that one asset class, it is not a truly diversified portfolio. In order to be truly diversified, you need to invest in multiple asset classes. Heads up – there are four.
The four asset classes are:
- Business – Business produces the world’s wealthiest people, but it’s also the toughest asset class to master and it takes the most financial education. Also, you’d better be prepared to sell a fish water. If you can’t sell, you can’t do business.
Real Estate – Real Estate requires the second most financial education and also the management of debt, people, and properties.
- Paper Assets – The majority of people invest in paper assets. Although they’re the easiest to get in and out of, they are the least controllable, which makes them the most risky.
- Commodities – gold, silver, sugar, oil – require the least financial education, but you can still hurt yourself. Best to have education before investing here as well.
The bottom line:
Entrusting someone else with your money is a poor investing strategy; so much so, that it can hardly be called investing. What to do? Invest in the asset classes that are of the greatest interest to you, but, before you go all in, become educated, learn how to invest and start small.
The question… Which investing strategy is the riskiest?
The answer… The investing strategy you have the least control over and know the least about.