One man’s meat is another man’s poison

Not everyone has an appetite for high-risk investing.

Joyce Chuah is CEO of Success Concepts Life Planners.

I ONCE saw a documentary about eating pufferfish or fugu which is an expensive Japanese delicacy.

It has become popular not just because of the unique taste of the fish but fugu diners also enjoy the “thrill of every bite”. This is because the fish’s toxin is 1,200 times stronger than cyanide. Every bit “numbs your tongue” due to the small amount of poison still present in the fish.

There are reportedly 30 to 60 poisoning incidents with up to six deaths per year. Despite the danger, fugu is a still popular dish with some diners.

One man’s meat is really another man’s poison. Pufferfish is not for the faint-hearted. Similarly, high-risk investing is also not suitable for everyone’s appetite.

Investment moves in cycles and high risk investments have bigger and more frequent swings. If you are unprepared for the roller-coaster ride, the chances are that you may want to cash out at the peak of your fear which sometimes is at the worst possible time.

Compounding the risk is also losing out on the upside when the market bounces back powerfully.

High-risk investing can be very tempting with very attractive returns but if such options are unsuitable for you, it may be better that you stay safe with ‘boring’ returns of between 5% and 12% a year compared to 10% to 30% in two weeks!

No matter how attractive the returns look like, it’s probably better to be safe in traditional investment options which are more diversified in nature and provide consistent returns. You may lose even more if you are not prepared for the vibrations that come with such high risk options.

Interestingly, do remember that holding a portfolio of the same low risk options can also be dangerous on your long-term purchasing power. Diversifying your FD across various banks will certainly not help hedge against inflation.

High-risk investing is not for everybody because high returns do come with its underlying high risks, albeit not life threatening like fugu.