The Risk of Not Taking Risk

My best friend opened his first investment account after five years of me griping at him about it.

He’s a smart guy. He can rewire a house. He runs a crew across multiple Walmart locations. He’s the family handyman. He built my computer and installed the software on it. And he was terrified to invest.

He was scared to lose money. Scared enough that he couldn’t bring himself to open an account, which to me seemed unreasonable. He’d watched my wins and my losses for years. Building an investment account was one thing I hadn’t failed at.

Then one day he looked at where five years had gone and thought: something has to change.

Five years of returns, and a house. That was his tuition for that decision. No different from college debt. Life doesn’t stop just because you decide not to take a perceived risk.

The cost nobody sees

There’s a name for this: omission bias. We judge harm caused by doing something as worse than the same harm caused by doing nothing.

If my friend had invested and lost money, he’d have felt responsible. He made a move and it went wrong. By never acting, he never had to feel that. When doing nothing leads somewhere bad, it doesn’t feel like a decision. It feels like luck. Nobody blames you for a choice you never made.

But it was a choice. Not opening the account was a decision he made every single day for five years, and it compounded the same way returns do, just in the other direction.

Why fear wins

For most of human history, fear kept you alive. The person who didn’t go near the edge, didn’t eat the strange plant, and didn’t wander off alone lived longer, and living longer meant more chances to have kids. We’re descended from the cautious ones.

The problem is we don’t live in that world anymore. Most of the risks in front of us now won’t kill us. They’ll cost us money, or pride, or time. Our wiring treats them like a predator anyway.

Humans fear the unknown more than almost anything. And yes, the unknown can hurt you. Put all your money in one stock and it can collapse. I’ve had a position fall apart on me, Walgreens. It was close to the worst case, and it didn’t kill me. I still beat the market that year. There are ways to limit a risk like that, and limiting a risk is a completely different thing from refusing to take it.

Zoom out

The way we look at risk is nearsighted. We stare at what could go wrong if we act and never price what goes wrong if we don’t.

So zoom out and ask the other question:

What is the risk of not taking the risk?

For my friend, it was years of feeling behind, compounded by actually being behind. It’s something I feel every day on my own path. Every move I haven’t made yet has a price, and I’m paying it whether I look at it or not.

Ask it about whatever you’re putting off. The answer might be a few dollars. It might be hundreds of thousands of them, a home, and years of your life you can’t get back. You can’t put a price on that, but you can stop pretending it costs nothing.

Sitting on the sidelines isn’t safety. It’s choosing to pay a different price.