How to Become Successful and Rich? Take Measured, Asymmetric Risks

Why Risk Is Actually Good

Mark Zuckerberg, the founding CEO of Facebook, famously said “the biggest risk is not taking any risk… In a world that’s changing really quickly, the only strategy that is guaranteed to fail is not taking risks.” Of course, we aren’t all going to be as successful as Mr. Zuckerberg. However, this statement is extremely important to think through.

To understand what he means, it’s useful to imagine what it would be like to take the conventional career path sought out by most people.

Base Case Scenario of the Conventional, “Safe” Career Path: Forced “Retirement” in Your 40’s or 50’s

If you don’t take much risk throughout your career and choose to walk the well-trodden path, you will likely be still quite successful until you reach the age of 45 to 55. You can get a job at a company in your 20’s, and gradually become more senior as you get promoted or change jobs in the next 20 to 30 years. In the best case scenario possible, you are likely going to become a very senior manager of some company.

The problem rises, however, when you finally reach this stage of your career. At the apex of your corporate life, suddenly you find yourself with no more place to go upwards because there is only a limited number of senior positions available. Meanwhile, there is a plethora of young, talented and “cheaper” people aiming for your position. In one way or another, most people go through this process and end up “retiring” around the age of 55 to 60 (if not earlier), with at least another 25 to 30 years to go in their lives.

The problem is that most people would not have saved up enough money to continue their lifestyle for so many years without making any income.  If you want to spend S$4,000 per month for 25 years, you would need S$1.2 million saved up! Because of this, you end up being forced to try a new venture, or end up taking a part-time gig like becoming a Grab driver after your so called retirement.

By avoiding risk and taking the conventional career path your whole life, you ultimately end up at a place where risk is no longer a choice but necessity. That’s not a good place to be for someone who hasn’t had much practice with taking risk.

Related: Is It Enough to Retire in Singapore with S$6,000 In Monthly Expenses?

Take Measured, Asymmetric Risk Early

This is why learning to take risk early in your career can actually be an immensely valuable exercise. In fact, not doing so can be a very risky proposition: you don’t want to be taking professional, career risk for the first time when you are 55.

Of course, it’s important to remember that risk is not always good. In fact, taking a risk for the sake of it is indeed quite dangerous in most cases. That’s why it’s extremely important to selectively partake in opportunities that have asymmetric risk and reward ratio.

The concept of “asymmetric risk/reward” is a rather simple one: choose opportunities whose possible rewards far outweigh their potential losses. For example, you could work on a new business idea on a part-time basis while you still have a full time job. If it begins to take off, you can then resign from your position to devote 200% of yourself into growing your own company. Many world-renown companies began this way, including Google, Microsoft, Starbucks, Apple, Warby Parker, etc.

You could even utilise crowdfunding platforms to help finance your business. Doing so can greatly reduce the likelihood that you end up in financial ruin even if your startup idea fails to take off. However, if it goes well, you have an opportunity to be in charge of your own life instead of being a salaryman eternally at the mercy of the corporate ladder.

Related: Cost Guide to Starting Your Own Business in Singapore

If starting a business is just way too daunting, there are other ways that you can take asymmetric risks to get outsized gains. Investing your idle cash into wealth creating vehicles like the stock market, for example, is another great way to grow your wealth.

You are unlikely to become extremely wealth just dollar cost averaging into the major index funds. In order to grow your wealth exponentially, you will have to take a much more involved stance and actively search for undervalued or growth stocks that have the potential to make you life changing money.

For example, at the time of writing (30th April 2024), the semiconductor company Nvida has exploded to the upside. If you were an active investor who bought the stock on 1 January 2024, you would have enjoyed 82.19% gains in just a short four months. Finding such gems will take hours of research and due diligence as an investor and, not to mention, the calculated risk of losing your hard earned money capital investing in the stock market.

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Related: Effective Techniques To Make Value Investing Work For You

Building Wealth Isn’t Always About Budgeting

In the conventional “personal finance” literature, it’s common to see a lot of discussion on how you can budget more smartly to spend less and save more. While utilising the right credit cards can help you save a lot of money via cash rebates and air miles, they are more useful in helping you afford a few things like vacation that you otherwise wouldn’t be able to afford as easily. These tricks can’t help dramatically upgrade your living standards from that of an average person to the top 1%-10% of the population.

To do so, it requires doing things that other people don’t do often, which generally is regarded to be risky. However, it may actually be less risky to engage in something that is less crowded instead of competing against everyone else who is trying to do the same thing as you are. While it’s certainly not easy to do, all you have to do is take some risk in a measured and practiced manner by selectively choosing an “asymmetric risk/reward” opportunity. If you go down this path, failures won’t hurt you much as you can build up resilience to be able to pick yourself up again and can actually serve as stepping stones for success on your future endeavours.

If you are interested in getting started on your investing journey, check out our results page of all the best online brokerages for beginner and experienced investors alike.

Read More:

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• Investing 101: A Basic Guide to Stocks
• How Options Work: A Basic Guide
• 3 Things to Watch Out For When Investing in Emerging Markets

Cover image source: Unsplash