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When I first came to this country in 1980,
driving a car was way too risky for me because I did not know how to drive.
There were too many cars on the street. The freeway was even scarier. I
chose to ride the bus because it was much safer. The bus brought me from
point A to point B with someone doing the driving for me. Now I am
driving my car and it does not look as risky as I once thought. In fact,
now I feel safer driving my own car than riding a bus.
Let’s think about it for a moment. How can I
reverse the risky thoughts about bus riding and car driving when there is
basically nothing change about the transportation itself? The answer is
all about my ability to drive. When I did not know how to drive, I
thought driving was risky and I relied on the bus for my transportation.
Now I know how to drive and driving is suddenly not risky anymore.
When I
drive my own car, I have the freedom of choosing my own speed and route
to get to my destination. If I take the bus, I lose that control. Let’s
say I take the bus from Los Angeles to San Francisco. If
the bus driver takes Freeway 5, I am stuck with the mountain route. If he
takes 101 Freeway, I am stuck with the coastal route. If he takes the
surface street and stops at every city on the way to San
Francisco, I will be sitting on the bus for a long time
before I get to San Francisco.
If I have a bus driver with good driving record, I am safe. If I have a
bus driver with less favorable driving record, I am more or less at risk.
In other words, my safety, my time and my route are totally in the bus
driver hands.
When I first invested, I did not invest in the
stock market because I thought it was too risky. I chose to invest in
mutual funds because it was a much safer investment vehicle for me at
that time. I was relying on the fund manager to bring me to a comfortable
financial life when I retire. If I have a good fund manager, I will be in
good shape financially when I retire. If I have a bad fund manager, my
retirement plan will be in trouble. In other words, my financial future
is totally in the fund manager hands. Sound familiar? It sounds like
riding a bus from Los Angeles to San Francisco to me.
When I first looked at the stock market, I
thought it was too risky. There are too many stocks to choose from. I do
not know when to trade, how the market behaves and what to do if I am
wrong. After my stock investment education, I thought it is not that
risky any more because I can handle the what, when and how questions.
When I take over my own investment, I gain control of my risk and my
reward. In other words, my financial future is in my own hands. Sound
familiar? It sounds like driving my own car to me.
When we look at our daily activities, there are
risks in every thing we do. There are risks when we cross the street,
drive the car and so on. We do not feel the risks because we know how to
manage them.
Most, if not all, of us choose to drive over
walk when we want to go from point A to point B. In term of car accident,
driving faces much higher risk than walking. Yet, we choose to drive
because we want to get to our destination fast and we know how to manage
the car accident risk. We prioritize the speed over our safety in our
daily commute. However, when it comes to financial route, most of us do
the exact opposite: We prioritize our safety over the speed. The reason
is simple: We know how to handle car accident risk but we have no idea
how to manage financial risk.
I know some typical “savers” trying to avoid
risk at all cost. They put money in their CD account and earn about 3 to
4 % return annually. They told me they do not want to lose money
investing in the stock market. To which I replied, “Neither do I and that
is why I am investing in the stock market.” Their CD account guarantees
them 3 to 4% annual return and it looks like a “sure win” investment for
them on the surface. Little do they know if tax and inflation rate are
factored in, their buying power is diminishing every year. A “sure win” investment turns out to be
a “sure loss” deal.
I
personally like the Chinese word for crisis: 危機. It is a combination of danger and
opportunity. The majorities only see the danger in a crisis and run away.
They see only one side of the coin. Very few capture the opportunity and
benefit from it. They see both sides of the coin.
We may not be aware of it, but most
of us took the biggest risk imaginable from late 70’s to early 80’s for
our freedom. We all risked our lives on a tiny and crowded wooden boat
for our long, dangerous journey crossing the vast ocean with minimum
safety equipments and with limited food, water and fuel. We were all
willing to take that risk and even paid for a chance to take it. We were
not hesitant to risk our lives for our physical freedom; yet, we are
hesitant when it comes to take financial risk for our financial freedom.
We took the biggest risk for our freedom to act and to think; why not
exercise that freedom to move a step further and take a lesser risk,
compared to risking our own lives, for our financial freedom?
To risk or not to risk? The choice is mine.
Instead of choosing to avoid risk, I choose to manage risk. To me, the
biggest risk is not taking any risk at all.
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