Almost every other day there’s a comment from someone who wants to know what the best investment is – one that will give him the highest return.
There’s no inquiry about risk, and that’s not surprising because people new to investing don’t really understand or even think about risk. It’s only after you’ve burned your fingers a few times that the concept begins to sink in.
Talking about return without talking about risk is meaningless. If you’re going to go after high returns know that you’re taking a greater risk as well.
If you buy debt backed by the US government you will get very little by way of returns but it’s very unlikely that your investment goes to zero.
If you buy a penny stock then it might double next year, but then there’s a very real chance that it halves as well.
So, that’s the simple message I want to convey with this post, and this image which I’ve grown quite fond of in the 15 minutes of its existence.
If you hear someone talk about returns without talking about risk – tell him his folly. And please do share this picture with people new to investing, and others who you think will benefit from the message.