Start the conversation
There's no way to eliminate risk 100% when it comes to investing.
I can't do it. You can't do it. (And if anyone tries to tell you otherwise, take your money and run.)
There's just no such thing.
That said, there is one way you can make any investment risk-free under the right set of circumstances – by using one of my favorite Total Wealth Tactics: the free trade.
The concept of a risk-free investment is not new. The allure of risking nothing and gaining everything has been around for centuries.
Case in point…
…the Tulip Bulb Crisis of 1634-1637
…the South Sea Bubble of 1711
…the Florida Real Estate Crash of 1926
…Bernie Madoff's Ponzi scheme
So, why is it that you hear the term in widespread use today?
Because Wall Street only associates risk with loss.
That's why you're told U.S. Treasuries and other government paper are risk-free investment choices, even though they know full well that there are risks inherent in every investment. It's a game of semantics.
It's also a game, incidentally, that Wall Street's big traders desperately want you to play because it forces you to implicitly buy off on the most profitable strategy of all (for them) – diversification.
No doubt you've heard that term before – just probably not like I'm about to explain it to you.
"Diversification" Is a Marketing Tactic
Diversification is the idea that if you spread your risk around in different asset classes and investments – like stocks, bonds, cash, real estate, and the like – you'll be better off. The thinking is that not everything can possibly go down at once.
It's also a concept that's been around for a while. In fact, the theory was first noted in the book of Ecclesiastes written around 935 B.C. It's also mentioned in the Talmud. Even Shakespeare picked up on it in "The Merchant of Venice" hundreds of years ago.
But it's absolutely wrong.
Ask anybody who got their portfolio halved twice in the last 15 years – first during the dot-bomb implosion from 2000-2003 and then the ongoing financial crisis that kicked off in 2008 with a vengeance. "Everything" went down at once… both times.
And it's not just me who thinks so, either.
Warren Buffett notably quipped that diversification "makes very little sense for those who know what they are doing."
The legendary Jim Rogers famously observed that "diversification is something brokers came up with, so they don't get sued." To which he added in a 2016 Business Insider interview on the subject, "if you want to get rich, you have to concentrate and think differently."
I agree very strongly.
Wall Street doesn't want you to put all your eggs in one basket because – they'll tell you – it's riskier. To which I reply, "for you" because spreading your money around means they earn higher commissions, they have a greater number of opportunities to pick your pockets, and they can prey on your worst fears.
I believe you've got to think about risk differently in today's highly computerized and interlinked global markets, especially when it comes to your winners.
Again, Mr. Rogers and I agree. He notes – and I'm paraphrasing – that you want to put all your eggs in one basket… just make sure it's the right basket and watch it carefully.
My logic isn't sophisticated.
Put simply, nobody ever went broke taking profits, but plenty of people have gone broke taking losses. So it not only makes sense to concentrate your assets using appropriate risk management, but also to harvest your winners when the markets are strong. That way you'll have opportunity at hand rather than be forced to run for the hills when the markets are weak.
It doesn't matter whether you've got a lot of money or just a little, the principles driving our discussion today are exactly the same:
You want to capture profits every chance you get; and,
You want to take risk off the table at every opportunity.
Preferably, both at the same time.
Here's a Real-Life Example of How This Works
About the Author
Keith is a seasoned market analyst and professional trader with more than 37 years of global experience. He is one of very few experts to correctly see both the dot.bomb crisis and the ongoing financial crisis coming ahead of time - and one of even fewer to help millions of investors around the world successfully navigate them both. Forbes hailed him as a "Market Visionary." He is a regular on FOX Business News and Yahoo! Finance, and his observations have been featured in Bloomberg, The Wall Street Journal, WIRED, and MarketWatch. Keith previously led The Money Map Report, Money Map's flagship newsletter, as Chief Investment Strategist, from 20007 to 2020. Keith holds a BS in management and finance from Skidmore College and an MS in international finance (with a focus on Japanese business science) from Chaminade University. He regularly travels the world in search of investment opportunities others don't yet see or understand.