Chapter 10

Risk management and insurance

Hope for the best and prepare for the worst.


Risk is the chance of danger or loss. In the context of investment, it’s the potential to lose money. In my experience, people are happy to take a risk, but they aren’t happy to take a loss. It sounds like a paradox, and in effect it is. The difference exists only in the mind of the investor. If an investment involves risk (and virtually all investments do), you can potentially lose money on it, but most people don’t think it will happen. Naturally, we are optimistic, and we don’t want to think that investing money into something will create a loss. Investing into a loss-making situation doesn’t make sense.

It’s for the same reason that people hang ...

Get The One Page Financial Plan: Everything You Need to Successfully Manage Your Money and Invest for Wealth Creation now with O’Reilly online learning.

O’Reilly members experience live online training, plus books, videos, and digital content from 200+ publishers.