{"id":2340,"date":"2021-11-03T05:13:33","date_gmt":"2021-11-03T05:13:33","guid":{"rendered":"http:\/\/www.assetmultiplier.co.in\/blog\/?p=2340"},"modified":"2021-11-03T05:13:33","modified_gmt":"2021-11-03T05:13:33","slug":"death-by-cigarettes","status":"publish","type":"post","link":"https:\/\/www.assetmultiplier.co.in\/blog\/2021\/11\/03\/death-by-cigarettes\/","title":{"rendered":"Death by Cigarettes"},"content":{"rendered":"

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Nick Maggiulli writes on his blog that there are two kinds of risks in investing and in life\u2014fast risk and slow risk. Fast risk is the stuff that makes headlines. It\u2019s the things that we are warned about every day. The reason for this is simple\u2014the consequences of fast risk are\u00a0immediate<\/em>\u00a0and usually\u00a0devastating<\/em>. But then there\u2019s slow risk. Slow risk is the\u00a0accumulation<\/em>\u00a0of bad decisions that eventually leads to an unwanted outcome.<\/p>\n

Slow risk doesn\u2019t make headlines. Every time a hedge fund blows up you will probably hear about it. But you never hear about the person who sat in cash for 20 years because they were too afraid to get invested. Both are equally devastating, but one seems less spectacular than the other.<\/p>\n

The simplest analogy to differentiate between fast risk and slow risk is heroin vs. cigarettes. Heroin is fast risk. Cigarettes are slow risk. Heroin tends to kill people quickly (especially in the event of an overdose), while cigarettes tend to kill people slowly.<\/p>\n

Unfortunately, most of the time when people talk about risk, they are talking about fast risk. For example, stocks have lots of fast risk, but little slow risk. The S&P 500 could drop 20% tomorrow, but 30 years from now it\u2019s likely to be much higher than it is today. On the other hand, cash has lots of slow risk, but little fast risk. Next year your dollar should be worth about the same as it is worth today. But 30 years from now? Not so much.<\/p>\n

As your time horizon increases the risk of losing money in stocks decreases and the risk of losing money in cash increases. As Peter L. Bernstein noted in\u00a0Against the Gods: Risk and time are opposite sides of the same coin, for if there were no tomorrow there would be no risk. <\/em>This is why cash isn\u2019t really a risk-free asset but more of a\u00a0fast<\/em>\u00a0risk-free asset. Cash still has plenty of risk, but it is of the\u00a0slow<\/em>\u00a0variety.<\/p>\n

Source: dollarsanddata<\/p>\n

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