Weekend Reading: The Illusion of Security in Investing

This article appears as part of Casey Weade's Weekend Reading for Retirees series. Every Friday, Casey highlights four hand-picked articles on trending retirement topics and delivers them straight to your email inbox. Get on the list here.
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Weekend Reading

Do you have clarity on how much of your savings are at risk? In his book, Fooled by Randomness, author Nassim Taleb likens life's critical risks to a revolver with numerous chambers, unlike the six-chambered revolver in Russian roulette. He states a false sense of security can cause you to underestimate risks, especially in the field of finance, where long-term consequences are not immediately apparent.


Misinterpreting risk: Taleb explores the human psyche, noting humans’ poor ability to assess probabilities accurately. Adding to this disillusion is the fact that your perception of risk is influenced by personal experiences and emotions, rather than objective analysis. This can create a false sense of security, as you might believe you have more influence over outcomes than you actually do.

Improving your understanding of probabilities: You must first be aware of your psychological biases. Further, you should focus on financial factors you can control, including the personal risk, cost, time and behavior you associate with your investments. Above all, it’s wise to prepare for the improbable and embrace the unknown so you can lead a more financially resilient life.

The risks you haven’t planned for can ultimately be the ones that put you in financial jeopardy. However, these risks are often controllable, while future returns offer limited influence, especially when it comes to the stock market.