The Rules of Wealth, 3rd Edition

RULE 27

Think through the alternatives to taking a risk

We all know that the greater the risk, the higher the potential reward. And of course the lower the risk, the less return you’re likely to get on your investment.

But you also need to consider what your alternative is. What if you don’t take this risk? Is there an alternative that gives you almost as high a return, or will the money bring you in almost nothing if you don’t take the risk?

YOU NEED TO CONSIDERWHAT YOUR ALTERNATIVEIS. WHAT IF YOU DON’TTAKE THIS RISK?

Let me give you an example. Suppose you’re considering investing in a volatile market for a chance of high returns. If you don’t make the investment, you could put the money in the building society where it ought to be safe ...