Financial Fiction Wednesday #22

Linear Thinking

There is nothing linear about risk when it comes to investing. Not only are these investment options out of order (commodities are not generally safer than stocks and real estate can be risky any-which-way depending on how you approach it), but thinking about investing as a pure input-output risk-return trade off is dangerous. It doesn't work that way.

Also, crypto probably belongs about 4 inches to the right.

Risk is an inherent attribute of investing. Return is very situational. Look at bonds in 2022. The worst return since 1931 by one measure. You are better off holding cash vs both stocks and bonds this year. You cannot target returns, you can only manage risk.

If we look on a long-term timeframe, cash might have the worst return of all of these assets since it only loses value. Cash has little risk of volatility and short term losses but guarantees a loss in the long run. Does that make it the riskiest on the chart or the safest?

Risk and return are too complicated to settle here but this chart isn't doing anyone any favors.

All Fiction