Which Investments are worth the risk?

Worth The Risk?

You may not realise this but more people died in the USA, following 9/11, by choosing to drive rather than fly, than actually died in the attack. This is because driving is, statistically, way more risky than flying - but at that particular time people were not convinced and many who had clearly chosen to drive and not fly lost their lives as a result.

As a Financial Planner risk plays a huge role in my career and daily decisions. It also fascinates me how clients and people in general view it, particularly where investments are concerned.

Risk got us out of the caves and into Canary Wharf. One member of Homo Sapiens thought “I wonder what’s over that hill” and ventured forth to begin the progress of humanity. Napoleon took Risks. Churchill took Risks. NM Rothschild took risks. Reward is clearly proportionately linked to risk in every walk of life.

So what do every day people think of money and risk? Here are results of a small (and largely amateur) survey of around 80 people. Each was given this scenario. They had £1000 now and could choose between a 50% chance of doubling their money or a 100% certainty of making 50%. Over 80% of them chose the second option – preferring a guaranteed £500 to a possible £1000.

Then they were told they had £2000 already and were asked to choose between a 50% chance of LOSING £1000 or a guaranteed loss of £500. Nearly everyone now chose the first option!

In fact in each scenario there were the same outcomes…a 50% chance of £1000, a 50% chance of £2000, or a guarantee of £1500 – yet when the emphasis was on a loss people became more inclined towards risk taking. This may be why guaranteed bonds and absolute return investments are so popular…in general people like guarantee returns on the upside but take risks to avoid losses!