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Comments

Cavemanus

Thank you so much for this thought provoking post.

In one example you state:
"[It is] important to understand that we may "calculate" risk in terms of probability of an outcome, such as with rolling a pair of dice."

But, if I could add to your dice analogy:
"When a die rolls off of the table, the event was unquantifiable and, therefore, an uncertain outcome."

Rolling a die is quantifiable risk, you can calculate the probabilities. There is still uncertainty involved in the process, though. It is important when investing to be aware of both factors.

As far as your religious beliefs, you note the existence of God is an uncertainty. You clearly feels it is a yes or no question ("He" exists, or not). You have faith, and spirituality is a very personal issue. I certainly would never try to alter your beliefs, but I will suggest reflection on the following:

Uncertainty dictates that there are other options you may not have considered. Perhaps there is higher consciousness without the necessity of a personified deity. Perhaps there exists a universal consciousness. I do not know, of course, but I think the options are limitless beyond comprehension.

The point of uncertainty is that the risk you try to control may turn out to be moot. That does not mean you make drastic changes to the way you live or stop trying to control risk. It simply means you never stop considering the possibilities you may have overlooked.

Thanks again for making me think!

The Financial Philosopher

Cavemanus:

Excellent points! Regarding your comment "When a die rolls off of the table, the event was unquantifiable and, therefore, an uncertain outcome."

I will not argue with that point but will add to it by returning to the variable of "choice" from my post: The die-roller made a choice to roll them on the table. Making a choice to roll them on the floor, instead, will completely remove the uncertainty that a die will roll off the table...

As far as your comment that "Uncertainty dictates that there are other options you may not have considered. Perhaps there is higher consciousness without the necessity of a personified deity. Perhaps there exists a universal consciousness. I do not know, of course, but I think the options are limitless beyond comprehension."

I believe humans have the need to attach a name or meaning to things they can not comprehend, such as a "personified deity." Your "higher consciousness" and "universal consciousness" sound attributable to Godly characteristics to me. I will agree that it may be wise to consider beyond the absolutes of God exists or does not exist. Perhaps, instead, it is wiser to decide there is a God but spend our energy defining what that means to us personally rather than allow others to define it for us...

On a much lighter note, the post referred to retirement. To end on a personal finance analogy, we should also define what that means personally -- otherwise, we are left with what others will define -- age 65, stop working, get Social Security, play Golf, watch the grass grow, wait to die. That's not my definition...

Thanks again for the thought provoking points...

Rachael

Thanks for the information...I bookmarked your site, and I appreciate your time and effort to make your blog a success!

Evan

Great post. My thoughts are similar.

http://evanbleker.com/thoughts-on-risk/

I used to think that the best investment strategy, or the one that produces the best returns, is the one that is best able to minimize risk. I'm not sure about that anymore, though. If that were the case than just putting your money in a savings account pegged to inflation would be the best investment strategy (so long as you're not counting opportunity cost as risk). To make decent money requires risk-taking, though maybe the best strategy in a given asset class is the one that has the least amount of risk.

When it comes to stocks, what investment strategy do you think best deals with risk and has the largest potential reward?

Kent @ The Financial Philosopher

Evan:

The answer to questions of investment strategy application for an individual always begins with "it depends."

Personally, I believe there is risk in not taking enough risk. At a minimum, I expect my money to be worth more later than it is now. In other words, if I can outpace inflation after taxes and trading costs, I am happy.

I also do not like to spend a large amount of time analyzing investments.

Considering all that I have said, I like to use a mix of around 8 mutual funds and ETF's that are most passive (Index). I use a "core and satellite" approach with around 30% in large cap index and the remainder in a combination of small-cap, emerging markets, multi-sector bond and a few sector funds with near-term growth potential.

My approach is really quite simple, although it may sound somewhat complex.

Thanks for the comment.

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About Kent Thune


  • Kent Thune is a wealth manager, a writer and a philosopher... Read More

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