Risk free is a mythArticle added by Karl Schilling on July 24, 2013

Karl Schilling

Davenport, FL

Joined: October 29, 2005

How then can this industry get misdirected into the discussions usually reserved for those in the increased risk areas such as equities, private placements and other exotic investments? Let's top trying to combine investment with fixed guarantees and confusing the issue at hand.

The greatest myth ever perpetrated on a society is the concept of risk free. There is nothing that is totally free of risk. Daily living is a risk. Every event in your life contains some element of risk. When you eat a meal, you take a risk that the food is cooked properly and is bacteria-free. You also take on the risk that you will chew the food properly and successfully swallow it. You take a risk when you get on public transportation, get in your car, or cross the street. It goes on and on; there are countless numbers of examples.

For our purposes though, we are strictly focused on financial or investment risk. How many offers do you receive each day that promise a risk-free opportunity? Some of these are not even sensible, let alone reasonable. Why waste your time even considering these ridiculous offers?

The vast majority of scams are predicated upon the basis of being without risk. They offer incredible return for ZERO risk. Please, take a moment and consider how impossible this is. If you could get 800 percent return on your money in five days, why would the promoters need any more money? Why would they seek your capital? One investor at 800 percent every five days would be more than sufficient to provide a continuous stream of capital for ongoing trading. Why would any investor withdraw 100 percent of their capital when they could simply keep rolling over the gains each time and continue to make 800 percent with no risk?

Of course we all know the answers to these questions and yet everyday, there are more victims created by the allure of risk-free opportunities to double, triple, quadruple or even make 10 times their investment.

All industries have created some form of the myth. The financial services industry has multiple versions, all of which end up with someone chasing the money.

At least degenerate gamblers reach bottom. Scam victims, or marks as they're called, never seem to find the bottom; they just continue to chase money with one bad decision after another. We have all lost money, but the most important step is what happens next. If you become a chaser, you are doomed to continued failure and ultimate destitution. If you step back and identify what happened and how, you are on the road to recovery. Just as gains cannot be found overnight, losses can’t be immediately recovered.
Patience and discipline are the keys to financial success. The discipline aspect includes the sensibility to review, research and complete due diligence before making a decision. The wisdom to have a non-biased, third-party set of eyes on any monetary or financial decisions is also priceless. A third-party advocate can review your opportunities with no personal bias and see the obstacles that most individuals will conveniently overlook. The subconscious is very powerful. If you ignore your intuitions, you will become easy prey for those who are seeking victims.

Why is risk free impossible? There are many reasons; however, time only allows us to cover one in this article.

The concept of scarcity has long been fundamental to financial markets. If something is scarce, it increases in value as the demand continues to chase a perceived scarcity. Risk is a component of scarcity. Without risk, how could the value of scarcity increase?

Over time, greater value has become associated with greater risk. When you are willing to take on greater risk, you are entitled to greater rewards. If everyone could simply walk in risk free, then the market couldn't grow in value. It would become flat. For this reason, the proffer of risk free doesn’t equate with the marketplace.

If you decide to lend money to an associate who has little or no collateral, then you have a greater risk that the associate will default on the loan and you will receive zero value in return. For this risk, you are entitled to a greatly increased return on investment. The fact is that the other party has zero hard asset value to offer in return, and therefore, the risk is measured upon the ability to return the capital you have laid out. This elementary concept is the foundation of all risk profiling. Anyone who tries to sell an exceptional return with zero risk is just a fool or a con man. Either one is equally dangerous to your financial future.

As insurance professionals you have the ability to help clients understand the values of risk. You represent products that have certain legitimate guarantees and can provide economic safety at the most pressing times in people's lives. How then can this industry get misdirected into the discussions usually reserved for those in the increased risk areas such as equities, private placements and other exotic investments? Let's top trying to combine investment with fixed guarantees and confusing the issue at hand. Be a true professional and educate the public on the true value of financial protection when an income earner dies, ongoing income that can't be outlived. These premises are enough to make a huge difference in the lives of the people you serve everyday.

Here's a simple investment rule that can help you avoid losses: Don’t invest in fairy tales and myths. Risk free is a myth.
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