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Friday, March 8, 2013

Risk in Taking Action and Doing Nothing

PnL

Last year, I shared about cash management and investing in mutual funds with two people. One of them took action straight away. Within a week, she opened a new investment account and started investing in some mutual funds. The other one did nothing.

Six months passed… 

The first one who had taken action immediately got a return of more than 13% of total money invested. She invested in mutual fund using dollar-cost-averaging to simplify the process. She allocated a fixed amount of money and invested in mutual fund at a fixed date every month.

The one who did nothing only got a mere 0.1% return because he only put the money in savings account. Without him realizing it, his money was actually losing value because of inflation.

The two of them received the same lessons, the same advices, yet their action or inaction gave them vastly different results.

There is a risk in taking action or doing nothing. When you take action, you know you take a calculated risk. There is a risk of failure or loss in taking action, but there is also a possibility of success. When you do nothing, you may feel that you are not taking any risk, but when you do nothing, you have a risk of regret for not doing it. In finance, doing nothing will definitely cost you because you have time and inflation working against you.

Have you taken a calculated risk recently? How are you faring? Please share in the comments.

 

Learn and Grow!

Inge Santoso, B. Com, CFP®

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