Higher Risk, Higher Reward! Or Is It Really So?
As we progress through school and life we are taught that when investing our money the higher the risk, the higher the reward and hence many asset owners (including retail investors like many of us) try to allocate our portfolio's accordingly.
As some of you may know I have taken many years to redesign an ecosystem that could possibly be the catalyst for the transformation of global finance and I am delighted to say that some remarkable people have embraced it and are taking up the challenge to build out an institution using the thesis as a guide.
At speaking engagements I am often asked to define (in one sentence or less) what is wrong with the current financial system and as you would imagine when I am speaking on a panel there are numerous replies as to what is wrong and what must be fixed.
In an effort to simplify my response I now use the image attached to this post that turns what we have learned about "Risk/Reward" on its head as the pyramid shows levels of reward (highest to lowest) going from the apex to the base while risk (highest to lowest) going from the base the apex. In other words many financial institutions (not all) are designed to drive lower risk higher reward at the apex, resulting in higher risk lower reward at the base.
As evidenced by the market collapse of 2007, 8, 9 etc., plus the detriment to the planet that has been caused through the "extractive age" it is now quite clear that Higher Risk/Higher Reward is not true for everyone as in many instances the very people preaching this thesis are the ones not abiding by it.
Needless to say there is always a section of the "old paradigm" that disagrees with me so at least the diagram gives everyone the opportunity to determine for themselves where vast majority of the risks and rewards truly are.