What's that saying again about getting rich through taking a lot of risk with little money and staying rich by taking little risk with a lot of money?
The more I examine this statement, the less clarity I found, especially around the middle ground with risk.
I think taking a lot of unjustified risk doesn't count as smart wealth building, but we do gamble almost on a constant basis with investment choices and business decisions.
Becoming more conservative as you get richer does seem sensible and there's also this aspect of recognizing that the wealth building part and wealth preservation part are somehow completely different equations.
When you're starting with little capital, you exist in what could be called the "asymmetric opportunity zone", in that if you have $500 and lose it all on a risky investment, your life doesn't relatively change fundamentally.
Because you can rebuild that amount relatively quickly from your regular income, and the failure becomes valuable education.
But if that same $500 grows ten times to $5,000, you've made meaningful progress toward financial independence and the potential upside has far outweigh the manageable downside.
I think this is why the "unjustified risk" mentioned above is so important to consider. Since the risk you're taking has to match your situation.
Having limited capital means you need outsized returns to build wealth meaningfully. Conservative investments that return 4-6% annually won't move the needle when you're starting with small amounts.
You need those 20%, 50%, or even 100% annual returns that only come from taking calculated risks on growth opportunities.
The keywords are "calculated risks" and "growth opportunities". I feel many investors fumble the bag through not being able to distinguish between speculation and calculated risk-taking.
Speculation is betting on price movements you can't control or predict. Where as, calculated risk is investing in assets where you at least have a basic understanding of the fundamentals and can reasonably expect the value to increase over time based on real economic drivers.
The Middle Ground
In terms of the middle ground, I think it becomes clearer when one realizes this phase is more of a gradual transition and not a sudden switch from aggressive to conservative investing.
The obvious part is as your wealth grows, you gradually find yourself shifting from seeking maximum returns to seeking optimal risk-adjusted returns.
Think of it like a dimmer switch rather than an on-off button. But precisely because it is a dimmer switch, you can't rely on simple rules about when to change your strategy.
The not so obvious part that I've noticed is that this middle ground is also where your relationship with time begins to change.
In some ways, when you have $10,000, waiting five years for an investment to mature feels a bit manageable especially if you're young and building.
But if it's $100,000, those same five years represent a much larger opportunity cost because that money could be generating meaningful income right now.
The psychology can also get tricky here and you start asking yourself "Do I really need this investment to triple, or would I be satisfied if it just doubled while providing dividend income along the way?"
Making Peace with Lower Returns
I don't know, there's no clear cut answer here. Much of it depends on your personal goals, age, and market conditions.
Having both, i.e asset appreciation and dividend income, sounds ideal to me, like getting the best of growth and stability without fully committing to one extreme.
But in practice, achieving that balance does sometimes require diversification across asset classes, which introduces its own complexities, like rebalancing portfolios.
The answer could well be choosing the latter. Partly out of fear, because the stakes are higher and the downside of a big loss could set you back years, erasing hard-won progress.
Plus, with a larger principal, the math of compounding starts working more powerfully in your favor even at moderate returns; a 7% annual yield on $100,000 compounds to meaningful growth over time without the volatility that could wipe out gains.
It's almost a counterintuitive take that "boring" path of dividends and steady appreciation preserves both your money and peace of mind, which allows you to focus on life beyond the markets. Many overlook this because it feels less exciting than chasing moonshots.
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