The Risk Equilibrium

Yes, you read that right, there’s such a thing as risk equilibrium.

You might think you’re risk-averse, but another person might look at you and think you’re a risk-seeker.

The truth is, how we perceive risk isn’t just about what you or I think, it’s shaped by how we were raised.

Take someone who grew up during the Great Depression, they’re likely to be much less willing to take risks than someone born in a country with little to no inflation.

So, what am I trying to say?

The way you handle money and the risks you’re comfortable with all come from how you were raised and when you grew up.

Let’s use Bob as an example:

Bob was born a few years before the Great Depression. His family wasn’t wealthy, and things were tough.

Now, fast forward 30 years, and Bob is one of the wealthiest men in his community. But despite his wealth, Bob’s risk tolerance is still extremely low. While Bob’s in a comfortable financial position, he’s not about to make huge risky moves. Instead, he’s more likely to invest in something steady and safe like the S&P 500, rather than diving into something risky like Bitcoin.

Does this make sense? This is also why many people in their 40s or older have a hard time understanding or trusting Bitcoin. For them, Bitcoin is extra risky because it’s so new, and it’s a far cry from the safer investments they’re used to.

So, what should people do about this?

If you’re someone who feels afraid of risk, that’s perfectly okay. You can be afraid, but the key is to accept that risk. Trying to avoid it completely will only hurt your ability to trade and invest successfully.

You need to understand that every single investment carries some risk. If you’re not willing to take any risks, you’ll never be able to make progress. It’s like life itself. You could step outside and get hit by a car, or board a plane and something could go wrong. Even the simplest decisions come with risk.

The point is, risk is always present in everything you do. You’ve already accepted it when you decided to go to work, trusting other drivers on the road, or getting on a plane. If you didn’t accept the risks, you wouldn’t even leave the house.

In conclusion, either accept the risk and move forward, or don’t do it at all.

MEME OF THE DAY

Ahmed,