Recently, I came across the book ‘The Zurich Axioms’ by Max Gunther in 1985 as advice for investors offered some practical insights about how to anticipate the psychological challenges of managing uncertain situations in that there were two theses of many others that he had formed which we will outline today as part of this article.
Not taking any risk is also a risk – In today’s economic climate, where we’re experiencing low real rates, a significant portion of savings in traditional avenues like Recurring Deposits (RDs) and Fixed Deposits (FDs) are actually earning less than inflation. This means that, though perceived as “safe” these investments are at risk of eroding wealth over time. Essentially, if your returns are below inflation, your purchasing power decreases. So, not taking a risk (by sticking solely to FDs) is a risk in itself—a risk of negative real yields and diminishing wealth.
So what should one do especially if someone is in this situation, Gunther says,
Play for meaningful stakes – He advises that one should always aim to play for meaningful stakes, but also avoid risking amounts that would be catastrophic if lost. In the context of investments, if the goal is wealth creation a minimal allocation like 5% to equities may not contribute significantly to that goal. Instead consider an allocation that can have a meaningful impact without compromising financial security.
This principle goes beyond just financial decisions. In any new endeavour whether picking up a new hobby like a guitar or learning a skill like MS Excel dabbling superficially won’t yield significant growth. Practising one strumming pattern or learning just a few Excel formulas won’t add much value. Investing time and effort to reach a meaningful level is what brings results.
Conclusion: – RISK, if balanced wisely can often be the path to growth. Whether in investments or personal development, embracing meaningful effort & calculated risk can lead to greater returns, in wealth and personal satisfaction alike!!!!