There is a very definite and specific connection between risk and reward.
Select financial instruments that provide more protection, or less risk of investment loss, and your reward will be less in terms of the potential return this money can earn.
Take on greater risk that you could experience investment loss or that you will be forced to endure volatility, and you should expect to be rewarded with greater potential returns.
Many people become frustrated or even get taken advantage of when they believe, or when an advisor tells them, that it is possible to break the connection between risk and reward.
We all would like to find that perfect financial instrument that provides high returns with little or no risk and that would allow us to always get our hands on our money at any time it might be needed.
You are at a party and a friend pulls you aside and tells you an amazing story.
He has an investment advisor who has been making him a “ton of money” and doing it in a way in which there is no chance of any loss.
Your friend started out by giving this advisor $10,000 to invest. Within months, he got a check back for $12,500. Of that, he again invested $10,000. And a few months, later he got another $12,500 check.
“This works so well that I just sent him $70,000,” your friend announces.
Logic tells you that there must be something wrong with this.
But then, your friend tells you that his advisor is a highly respected financial expert who once served as the chair of the NASDAQ stock exchange.On top of that, he is so well-respected that dozens of banks and major charities trust him with their money.
There are two things you can do at this point.
Either plead with your friend to introduce you to his advisor, or pay closer attention to the unbreakable connection between risk and reward.
If you did the first, your introduction would have been to a man by the name of Bernie, short for Bernard Madoff, otherwise known as inmate #61727-054 and currently residing at the Federal Correctional Complex, Butner in North Carolina.
And with this introduction you would likely have eventually learned a very hard lesson.
If you did the second and understood that anytime the potential investment reward seems too attractive it is because the risk is greater as well.
Knowing this you would have recognized that a supposedly risk-free investment that earns a 50 percent return in a matter of months simply could not exist.
It’s not that there aren’t investments that can deliver such high returns; it’s just that the only possible “investment” that could provide this kind of reward must also be very risky or an absolute fraud.
So how did a slew of famous actors and actress, directors of movies, banks, hospitals and foundations get fooled? Every crook and Ponzi scheme operator in history knows the simple answer: these people wanted to believe.
Few things will be more important than your future retirement. And the way time flies, it will happen before you know it. We can help you plan for the inevitable.