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Author: Dwdonhoff Big gold star, 5000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76106  
Subject: Re: Hi gang... wow!!! Date: 9/15/2013 12:12 PM
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Hi 2gifts,

Someone's risk tolerance is a big piece of the decision on how to handle their finances and how they reach their goals.

I think you are not only correct, I think this topic is a bit jarring to some folks here because they've never stopped to quantify the specific costs of the risks, and learn to standardize among investing options to compare effectively.

Here's something I just wrote to someone else to help them understand, in big picture terms, the relative costs of risks;

Compare 3 groups of 1 million people, all earning the same income & each consistently employing all their capital uniformly in;
a. IUL, no loss, avg 8.7%
b. S&P buy & hold, possible avg 10-14%
c. Lottery tickets, possible 1,000% return

Which method gives the highest potential gains? = C
Which will pay out the most gross returns to the entire group? = A

Why? Because in B & C the total losses of the losers are greater than the winners. A has no losers.


If merely the *potential* of the higher return is an individual's priority, then the lottery trumps a naked S&P hold position... but most people don't think it through, and Wall Street (just as with Vegas) encourages the ignorance.

Dave Donhoff
Leverage Planner
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