What does “Capital at Risk” mean to you?
This is a question I ask myself a lot as I write it in various messages we send to customers. I 100% agree with the sentiment behind it - in other words, it is important that the reader, who may not have the full context understands the message to:
“beware that this activity (whatever it might be) carries some risk.”
It occurred to me that we take some of these warnings more seriously than others, and I’m wondering how they could be improved.
The reason I bring this up is that I watched a video very recently that made sure I understood the risks of a certain activity, … but it was not investment.
How often do you read the list of possible side effects on any medicine you take? Even Paracetamol has to declare some potential side effects. Unless you know you are in an at-risk (health) category, you probably ignore it, and worrying about it unnecessarily and not taking the medicine might mean you have to suffer for longer or potentially get worse.
In fact, the video was in preparation to donate plasma (to help fight Covid-19 infections). The NHS video was required to notify all participants of potential side effects of this procedure, and they ran from:
- a bruise and itching all the way to
- an air embolism and haemolysis.
Now that sounds a bit scary!
I think most of us are aware that these risks are small, so we get on with taking our medicines, donating blood and accepting the need for surgery.
But when it comes to our money, do most of us understand that ‘Capital at Risk’ also covers a very range of potential outcomes, not just the worst ones, but that without taking some risk, we may also be suffering unnecessarily?
Will the Games Stop?
On the other hand, as I’ve been writing this, the world has been dealing with the outcome of many individuals completely ignoring all health warnings and piling into shares in GameStop. This is not investment, but trading, and the risks are even more extreme.
In medical terms, I guess one might say this is more akin to some narcotic, offering highs and plenty of risk, but they remain in demand however much one might warn against them.
The phrase ‘Capital is at Risk’ seems almost quaint in these circumstances.
Time will tell
I suspect the answer is that it takes time. It can take time to feel the benefits of a treatment, just like it can take time for an investment to bring returns.
I believe that more people need to start investing, but in small and limited ways, and to focus on the least risky options in order to get more experience. And that, if you consider investing, that you clearly decide on your Risk Appetite (something the Dozens app makes sure you do) before you commit your money.
If we are given a reason to learn enough about what ‘Capital at Risk’ means to us individually, to understand the range of risks that we might face (or not), we can make more informed decisions in future.