No. of Recommendations: 0
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
Print the post  


The Retirement Investing Board
This is the board for all discussions related to Investing for and during retirement. To keep the board relevant and Foolish to everyone, please avoid making any posts pertaining to political partisanship. Fool on and Retire on!
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.