Do You Have Any Risk Sense? Part 2
Risk-Adjusting Your Return Expectations
You can find part 1 of the series here: Do you have any risk sense? Part 1.
Do You Have Any Risk Sense? Part 1
I spend a decent amount of time on twitter. Yes, I should post more. But it is difficult to write the same ideas week after week. However, many wanna-be twitter-influenzas don’t seem to have that problem. I made a large private list of people to be my foil that I use for inspiration - not in the sense of seeing what they do and saying “yes I will copy that”, but in the sense of “this guy has no consistent worldview and is just spewing random tidbits he obviously picked up from others”.
In part 1 we went over basic categorizing of different risk levels and what are comparable uses of money.
If you took away one thing, hopefully it is a way to spot your average grifting gooroo who says paying extra on a 2.5% APR debt is the absolute best use of your money - even better of a use of money than earning 5% in a HYSA. But the next day is saying how investing in SP500 ETF is superior to a HYSA because 20% return (from the arbitrary low point they picked) is way better than 5%.
The mental gymnastics to reach that conclusion is astounding.
But, part 1 left open the question of ‘how to compare dissimilar risked uses of money’.
Today, we are going to go over some frameworks and ways to do just that.
By the end of this post, you should be able to better answer the following question:
If you have an extra $1k and you have narrowed down your options to the following 4, which is the best choice?
Pay down 3% debt
Invest in cash-equivalent asset at 5% (ie-HYSA/UST/CD)
Invest in the SP500
Buy crypto