5 ms·

The thing to note is that for rich people there is very minimal risk since they usually have a safety net to fall back on.

indymike 5y ago
This is a paradox. Taking risks is derisked by wealth.
- maximus-decimus 5y ago
  A better way to phrase it is you have the same risk of failure, but somebody who's rich can afford to fail.
- dharmaturtle 5y ago
  The word "risk" is overloaded: https://www.optimizedportfolio.com/risk/ https://www.optimizedportfolio.com/risk/ There's risk as measured by volatility. This is exemplified by the stock market - it's highly volatile, but has a higher expected return than the bond market. People who can't afford the risk of the stock market (because it's too volatile) put their money into the bond market, which has less expected returns. There's risk of not meeting your retirement goals. There's risk of unemployment. There's risk of permanent loss of investment. There's risk that you can hedge with insurance. > rich people there is very minimal risk since they usually have a safety net to fall back on. Rich people have minimal _overall_ risk because they can afford to take large risky bets with positive expected return. This is because they have so much capital they can afford to take these bets over and over until the reward arrives (Kelly criterion). Poor people can't afford the risk, and therefore have to do things like pay for more insurance coverage, pay for extra warranty, or have a (relatively) large emergency fund.
  - anamax 5y ago
    An example helps. Suppose that you're offered an opportunity to bet $10 with a 90% chance of $0 return and 10% chance of $1,000. That's a good bet, especially if you can keep making it. Put $100 at risk and you've got a reasonable chance of ending up with $1000. Now let's multiply all of the dollars by 1,000. The numbers still work, but how many people can afford to put $100k into 10 bets? There are far more people who can afford to lose $10 than there are people who can afford to lose $10k.
    - landemva 5y ago
      This can be applied to buying several good defi project coins, at smaller entry amounts. Investing at smaller amounts is becoming available to those who can not qualify for SEC accredited investor status.
scarface74 5y ago
There is a reason that most people who go into relatively low paying prestigious jobs like journalism come from affluent backgrounds.

indymike 5y ago

This is a paradox. Taking risks is derisked by wealth.

maximus-decimus 5y ago
A better way to phrase it is you have the same risk of failure, but somebody who's rich can afford to fail.
dharmaturtle 5y ago
The word "risk" is overloaded: https://www.optimizedportfolio.com/risk/ https://www.optimizedportfolio.com/risk/ There's risk as measured by volatility. This is exemplified by the stock market - it's highly volatile, but has a higher expected return than the bond market. People who can't afford the risk of the stock market (because it's too volatile) put their money into the bond market, which has less expected returns. There's risk of not meeting your retirement goals. There's risk of unemployment. There's risk of permanent loss of investment. There's risk that you can hedge with insurance. > rich people there is very minimal risk since they usually have a safety net to fall back on. Rich people have minimal _overall_ risk because they can afford to take large risky bets with positive expected return. This is because they have so much capital they can afford to take these bets over and over until the reward arrives (Kelly criterion). Poor people can't afford the risk, and therefore have to do things like pay for more insurance coverage, pay for extra warranty, or have a (relatively) large emergency fund.
- anamax 5y ago
  An example helps. Suppose that you're offered an opportunity to bet $10 with a 90% chance of $0 return and 10% chance of $1,000. That's a good bet, especially if you can keep making it. Put $100 at risk and you've got a reasonable chance of ending up with $1000. Now let's multiply all of the dollars by 1,000. The numbers still work, but how many people can afford to put $100k into 10 bets? There are far more people who can afford to lose $10 than there are people who can afford to lose $10k.
  - landemva 5y ago
    This can be applied to buying several good defi project coins, at smaller entry amounts. Investing at smaller amounts is becoming available to those who can not qualify for SEC accredited investor status.

scarface74 5y ago

There is a reason that most people who go into relatively low paying prestigious jobs like journalism come from affluent backgrounds.