The greatest risk is to take no risk

When you invest in stocks (or in any asset for that matter), there are three types of risks:

  • risks that are outside your control. Say you are invested in a DAX index (8000 points at the end 2007) and the unexpected financial crisis hits the stock market by -40% in 2008, what can you do about that? Well, not much, unless you saw it coming (and very few people did). The only thing you can do is to remain patient until the market recovers (as it did: the DAX reached the 8000 mark in early 2013, and has been well above 8000 ever since (the DAX closed the year 2016 at 11481 points). So these risks are real, but in the long term, you can still come out as a winner.
  • risks of doing nothing, i.e. not investing in assets. These risks are much worse than the previous category. Say you could buy a flat for you and your family in Munich in 2008, but didn’t do it, and decided to continue renting your current flat instead? The price of flats in Munich has gone up by around 100% since 2008, so by not investing in property, you have lost the opportunity to win 100% on your investment. Now, in the meantime, your rent has increased substantially, and if you still want to buy a property, the prices of properties are twice as high as they used to be… hardly affordable even for high earners. So by taking zero risks, you are now in a worse situation.
  • finally, there is the risk of not keeping your brain in check and doing something stupid. Say your bank account manager contacts you with a fantastic story about a new fund that the bank is launching, waiving the entry fees but only until the end of the month. Shortly after the call you decide to invest €10000 without having done your own due diligence. That’s most likely a bad idea, and a high risk.

Fortunately, MyMoneyWorks helps you understand the risks that you are taking (or not taking), and this starts with education. The issue of risk is extensively covered in the Black Belt Masterclass Learning Program for Discovery members.

Portfolio risks are also highlighted in the Portfolio Dashboard for our ‘Premium’ members. Check the MyMoneyWorks membership levels.