Investment Trap #4
Risk and reward are not necessarily related. High risk does not guarantee, or even indicate the possibility of high reward!
If you stand on a golf course in a lightening storm with a nine iron over your head, there is a high risk of being struck by lightening. And there is no positive reward to be expected. Taking risk for its own sake is a crime.
Another form of imprudent risk-taking occurs when we fail to assess the sum of all outcomes when investing. Spinning a wheel with five “win” spaces and only one “lose” space may provide terrific odds of success. It would be foolhardy, however, to ignore the possibility of losing everything on one spin.
Prudent risk-taking has a very high statistical likelihood that you will receive additional return for your risk. A successful investor recognizes the difference between prudent and imprudent risk-taking, and acting accordingly.
Remove the mystery surrounding the investment process by understanding the myths about investing.
Investment Trap #5 – Trusting your broker
