1/ Steady returns come from either extensive diversification (stocks+bonds+commodities+alts) or from taking hard-to-measure risks (paychecks with the risk of getting fired, hidden credit risk of a bond or insurance product, tail risk from selling options).
2/ Diversification much better.
A micro-business (no loans, no employees, no long-term real estate leases) diversifies income across multiple clients. Owning several reduces the risk of getting bored because you get to use multiple skills sets with different seasonal cycles.
A micro-business (no loans, no employees, no long-term real estate leases) diversifies income across multiple clients. Owning several reduces the risk of getting bored because you get to use multiple skills sets with different seasonal cycles.
3/ Low-probability but high-risk events matter a lot.
For example, in March, everything hit the fan at the same time: people's jobs, their leveraged homes, their stocks, the credit risks and illiquidity in corporate bonds and insurance products, and unanticipated health risks.
For example, in March, everything hit the fan at the same time: people's jobs, their leveraged homes, their stocks, the credit risks and illiquidity in corporate bonds and insurance products, and unanticipated health risks.
4/ A less leveraged population is also less vulnerable to sudden events like a pandemic or World Trade Center attack. It's easier to socially distance with no debt, no employees, and no net exposure to market crashes (because crash risk is hedged away in a separate portfolio).
