What You Need To Understand About Risk & Reward
Most investors understand that when you invest there is always going to be risk involved. Most investors also make the decision to invest anyways because of the returns they’re potentially going to get. This is an age-old truth that we all get, right?
Or do we really understand it?
Remember, invest, at its root, means “to clothe your capital”. Think of clothing. What are you wearing right now as you read this? Well, you’re probably wearing something you like. You’re probably wearing something you understand. You’re probably also wearing something that you felt suits the present occasion. Investing is no different.
So when you invest, you should invest in things you like, things you understand, and things that suit the occasion for you. This simple filter is overlooked by almost every investor out there.
Just yesterday I talked to a guy who told me he is putting money into his retirement plan, which he really doesn’t like because he doesn’t understand it and ultimately he feels it isn’t going to get the job done for him. He has thousands and thousands of dollars in something that he doesn’t even want to be investing in.
Back to the clothing thing. If you were presented with several outfits that you didn’t like, didn’t understand, and didn’t think were suitable for you would you really pick one? No. You’d keep what you have on. So why do people make these decisions to invest in things they don’t like, understand, or feel are suitable?
Well I believe it is really 2 reasons.
#1 FOMO. That’s right. Fear of missing out. People want to be investing because that’s one of life’s “right answers”. You remember when you went to Sunday school as a kid and you could pretty much just say Jesus and get every answer right even if you didn’t know what it meant? Investing is kind of like that. It is the responsible thing to do. Apparently everyone is doing it. Those who don’t are looked own upon. And if you want to retire (another “right answer”) then you better start now before it’s too late. So people do it because they’re afraid of missing out.
#2 Marketing. Investments are one of the most heavily marketed things out there. They spend on commercials, social media, search engines, cookies, they sponsor major sporting events, and it is even to the point that the financial sector has created a sales distribution force of people to advertise their investments and branded them as “Advisors” so that the consumer feels they’re being advised rather than marketed to and sold to. If you think this isn’t the way it works, you are mistaken.
Now back to the risk and reward idea. Would you invest if there was no risk? Yes. But would you invest if there was no reward? No.
Okay well what if there was a chance for a reward, but the reward was unclear and couldn’t be guaranteed and ultimately could be nothing. Would you still risk it?
That would be sort of like you choosing an outfit you knew nothing about, couldn’t be described, and you couldn’t see it. And there was no real guarantee there would actually be clothing or an outfit at all.
This reminds me of a story my Mom used to read to me as a kid. Do you remember The Emperor’s New Clothes? It’s a story of an emperor who was advised by his council on a new outfit. He was basically oblivious, they didn’t like him, and advised him to wear a new outfit out in front of all the citizens. They talked it up, marketed it, and got him excited and earned his trust. He wore that new outfit in front of all the citizens and at the end of the story it turned out there was no outfit and he had been naked the entire time.
THAT’S WALL STREET INVESTING!
When you invest with Wall Street, and by this I mean investing in retail financial products (IRA’s, 401k’s, mutual funds, ETF’s, etc), you are paying money to bear all the risk when the reward isn’t real or guaranteed. You are being sold an outfit where you will ultimately end up walking around naked and exposed.
The picture above shows two investors. Investor A and Investor B. They both had a $500,000 investment and they both earned 10% annually for 5 years. But investor A did it the Wall Street way. Because of this he was in the stock market. His account went up and down and up and down. It gained lost and gained. Ultimately, even though it showed a positive return, this investor still lost money at the end. Why? Because when you lose money it takes 2x the returns to bring it back. If you lose 50%, you must gain 100% in order to break even again. Do you really think your 401k will continually double every year after you lose money? The only guarantee here is fees and that the financial services industry will make a buck on you.
Investor B invested my way. He did the Sacred Account and he did income producing real estate. Because of this, he really had two main differences. He gained money. He didn’t lose money. He never had a 50% year or anything like that. No grand slams or home runs. But he continued to hit singles. By doing this, he ended up with over $300,000 more than he started with. He paid no fees. He was guaranteed against loss. He was guaranteed to gain.
I help people move from Investor A status to Investor B status.
I help people make money with their money instead of just paying financial institutions with their money.
To wrap this up, last week, Wall Street lost over $1.1 trillion. Google how much 1 trillion is so you can get a good understanding of how bad that is. They’ll tell you it was only a small percent of the overall market, but don’t be fooled. You don’t pay your bills in percent, you pay them in dollars.
If you’re reading this and you’re sick of losing money, you’re sick of not gaining money, and you’re sick of paying financial institutions that produce no results for you other than fees then I want you to click here and learn more about how we can help. You’ll learn about the Sacred Account and if you’re interested, I am happy to get on a call and answer more of your questions.
If you’re a follower and have not read my book “The Blueprint to Financial Freedom” yet, that is the place to start. This book covers the specifics for each level in the various chapters, and you can grab the book for free as my gift.
Click here to get a copy!
The Blueprint to Financial Freedom by Jerry Fetta
To Purpose, Wealth & Freedom,
Jerry Fetta
Jerry Fetta is the CEO and Founder of Wealth DynamX. He is a nationally recognized financial expert featured in Forbes, Yahoo Finance, Fox, Chicago Weekly News, New York Finance, interviewed on over 45 podcasts with world renowned experts, earning endorsements and affiliations throughout his career with names like Kevin O’Leary, Grant Cardone, Dave Ramsey, and Pamela Yellen.
Jerry’s mission in life is to help create millions of financially educated and solvent families achieving greater financial freedom and sharing the truth about money with those around them.
Learn more at www.WealthDynamX.com
(DISCLAIMER: The information in this content should not be considered tax, financial, investment, or any kind of professional advice. Only a professional diagnosis of your specific situation can determine which strategies are appropriate for your needs. Wealth DynamX can and does not provide advice unless/until engaged by you.)
