How the rich manage risk.

How may we learn the ways of the rich?

Rich people aim to avoid disaster by diversifying the risks they cover. They do not seek to avoid risk (as poor people do) they seek a spread of risk and treat losses as an everyday hazard.

Without risk there is no profit. They remain fully invested and take losses on the chin. Furthermore, cash reserves are minimal. They stagger dividends so that little cash is needed. There is always some money on its way so little is needed on hand.

The interesting thing is that volatile assets (ones that go up and down a lot) tend to do better in the long run but are seen as risky. The average investor prefers steady growth even if it modest. The rich take two non correlated assets that move independently to one another They do not care how risky they may be provided they are not the same risks. The losses from one are more than covered by the other.

In short..the rich calculate risk differently. They are not adverse to individual risk but manage risk like a share portfolio to minimise the overall impact. They sleep well at night may sleep at night in the certainty that things will go wrong... but not fatally so.