A man became isolated in the desert, and the water in his flask ran out. He knew he’d perish if he didn’t locate water soon. He then noticed an uninhabited cabin. He noticed a water pump in the hut but it didn’t work, so he gave up in frustration. He then noticed a bottle of water and their was a message on it. “Use this water to start the pump,” it said. Don’t forget to refill the bottle after you’re finished.” The man was torn between following instructions and drinking the water. If this is true, then pouring water into the pump is equivalent to tossing away one’s final shot of survival. He took a risk and put water into the pump. He heard a gurgling sound and water gushed out. He drank his fill, rejuvenated himself, and refilled his flask as well as the bottle. Before departing, he scribbled “Believe me, it works” on the bottle.
We also have the option of investing based on our risk tolerance. We may not be able to develop wealth or accomplish some critical goals, such as post-retirement cash flows, if we chose risk-free investments. Because of their potential to generate larger returns, investing in comparatively riskier assets such as equity can assist to accomplish goals as well as develop wealth. However, equity returns are unpredictable. We can only learn from history that wealth is created by investing consistently over long periods of time. Nobody knows how much money we will receive or how long it will take. The greater risk is that the market will underperform in some cycles. As a result, in order to develop wealth, we must take a risk in equities and continue to invest according to our risk tolerance. Perhaps one day you will remark, ‘Believe me, it works.’