The 3 biggest mistakes people make on RISK

[dozu888]

When you take big risks at 20 years old and lose everything, you lose thousands. It isn't so bad because you can still find a stable job and recover from the loss. When you take big risks at 70 years old and lose everything, you lose millions. To make matters worse, at that age, you're probably unemployable and most likely unable to recover from the loss.

When you take big risks at 70 and succeed, you don't have many years left to live and enjoy the success. When you take big risks at 20 and succeed, you have a lifetime ahead to enjoy the success.

Taking big risks when young and falling hard early speeds up the learning process. This speeds up the wealth creation process.

It is hard for me to agree with OP why it makes sense to take big risks when old instead of young.

ok see above for the 70 lol...

you don't have to lose millions when you are 70 (again, just a number lol).... e.g. I am 51... already all set... so if now I decide to put $100k to some absurd thing like day trading, this wouldn't affect my quality of life going forward....

 

[ElCubano]

It is hard for me to agree with OP why it makes sense to take big risks when old instead of young.

It’s not so much that you are taking huge risks as 70 but that you are not tak8ng them when you are 25 is the point I think he is trying to make.

 

[_eug_]

I used to think like you suggest, did it help, sure! but boy am I glad that I am now living for the NOW and not for when I'm old and decrepit.

 

[ElCubano]

From a pure probability and compounding perspective, what you say makes sense. What you ignore though is that younger people often don't have families depending on them and can afford to take on more risk. Plus, some people leave "safe" corporate gigs to start their own companies and the payoff is huge. A former co-worker left the company to work on a startup which later was sold to meetup.com. He did quite well and is currently raising a family in NYC. Granted, the example I gave is different than the typical day trader wanna-be as even if the startup fails, the individual can usually parlay that into a very high paying tech job. I think the real tragedy is the wanna be day trader who toils away for years at the venture and barely has a chance to make any real money.

It’s not an exact science and may be different for everyone as life throws us our fair share of curve balls. But the logic makes sense at least for me and looking back which is always easy lol.

 

[dozu888]

From a pure probability and compounding perspective, what you say makes sense. What you ignore though is that younger people often don't have families depending on them and can afford to take on more risk. Plus, some people leave "safe" corporate gigs to start their own companies and the payoff is huge. A former co-worker left the company to work on a startup which later was sold to meetup.com. He did quite well and is currently raising a family in NYC. Granted, the example I gave is different than the typical day trader wanna-be as even if the startup fails, the individual can usually parlay that into a very high paying tech job. I think the real tragedy is the wanna be day trader who toils away for years at the venture and barely has a chance to make any real money.

we are actually on the same page.

expected reward = payoff * probability of success.... so in your friend's case, the expected reward is higher than climbing the ladder, he sure should go for it.

notice I used 'independent consulting' in the first post, a venture actually perceived as 'risky' by many permanent employees.... but in this case, for many skilled workers the expected reward can be far higher than being an employee, hence that move also makes sense.

 

[helpme_please]

ok see above for the 70 lol...

you don't have to lose millions when you are 70 (again, just a number lol).... e.g. I am 51... already all set... so if now I decide to put $100k to some absurd thing like day trading, this wouldn't affect my quality of life going forward....

Ah ... I see. Proper position sizing will save the 70 years old from disaster.

But if you put $100k at risk and this amount is small enough that it will not affect your quality of life going forward, that's not taking big risks anyway. Big risks to me means risking most of your networth.

 

[dozu888]

I used to think like you suggest, did it help, sure! but boy am I glad that I am now living for the NOW and not for when I'm old and decrepit.

that's legit...

and I am not advocating living miserably when you are young.... it's very simple... you have income, you have expense..... maximize the income when you are young, minimize the expense only to the point of not sacrificing quality of life, then let the residual work for you in the most efficient way (instead of YOLO on stupid ventures).

 

[_eug_]

I took your advice all the way, living like a miser saving everything and going all in on ETF's. At 30 I said that's it enough. Time to take real risk I am to achieve something with my life. I had a good job too but just could not see myself doing what you propose and what I thought was the proper way any longer.

 

[qlai]

I think the real tragedy is the wanna be day trader who toils away for years at the venture and barely has a chance to make any real money.

Yes! That's why trading education outfits, including prop firms, are so controversial. They entice young people with "easy" money and if they fail, they are left with no transferable skills. So in this sense, I do agree with @dozu888

 

[dozu888]

Ah ... I see. Proper position sizing will save the 70 years old from disaster.

But if you put $100k at risk and this amount is small enough that it will not affect your quality of life going forward, that's not taking big risks anyway. Big risks to me means risking most of your networth.

a couple of points -

the size of the risk is a perspective thing... like $100k for me or you maybe not much, but for the guy scraping together $25k to start daytrading, $100k sounds like a big number...

to expand this concept a little bit.... in some situation you may have to risk it all lol.... say you want to try sky diving at some point of your life.... should you do it when you are 25, or when you are 70..... to me the answer is a no brainer lol.