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4-letter word: RISK!
Most Americans are afraid of taking risks and avoid it all costs.
“That’s risky, you can lose money!” is what a family member told me many years ago when I told them I wanted to learn how to trade stocks.
Today, I make a living by taking risks in the financial markets, trading stocks and options. If you think about it— if traders are NOT TAKING RISKS, WE AREN’T MAKING MONEY. I’m very comfortable in taking risks, assessing investment opportunities, with angel investments (assuming they’re in industries I’m familiar with), commercial real estate syndications, hedge funds, etc. As you can imagine, we turn down more opportunities than we accept. All that to say - I’m comfortable with risk.
Now, the average American CANNOT invest into hedge funds, because you have to be an Accredited Investor** as defined by the SEC. Why? Because investing in a hedge funds or alternative investments is ______? Risky! If we were to do an experiment — and invest $50k into a hedge fund and $50k into the lottery, which one will likely work in our favor?
The US Government is essentially saying that it’s ok to spend money on the lottery, but not in hedge funds, because “hedge funds are risky”. See what I mean? If you think about the probabilities between these 2 options, the odds of being profitable in a hedge fund (obviously depends on which one you pick) vs the lottery are not comparable. Making money with a hedge fund is more probable than getting hit by lightning, the Powerball/lottery, not so much***.
At the end of the day, I measure the probabilities of risk vs reward. If they are slanted in my favor, I typically make an investment, if not, I stay away.