Embrace and make the most of good instability

It’s arguable that this year simply revealed the instability thatwas always already there.

Commonfinancial advice is that if you want to invest in growth assets, such as shares or property, you need to have several yearsupyour sleeve.

That’s because history showsus that over a period of time, such investmentsmakeus money.

Butmonthto month, you can’t be sure what will happen with them. So you need the time inorder to embrace the instability that is a feature, not a bug, of these types of investments.

Thencovid-19 appeared out of nowhere and showedexactlyhow unstable things could get.

So it’s timely then, that financial journalist and columnist Richard Meadowsis releasing a book that combines philosophy and personal finance advice in order toshowus howthe world has always been unstable, andhowto both increase that instability and ride it out.

Acore focus of his book Optionality is learninghowto perpetually exploit those options, in order to give yourself the best chance of success.

Meadowsargues that in order to makethe most of the opportunities of life, you have to embrace risk. This isn’t flailing about into unknowable situations, but rather, highly strategic risk-taking. The idea is to always be looking for opportunities that could have a big potential upside, and very small downside.

Someof them might not work out, but you only need one to work in order for your life to change.

Someoneusing this strategy might devote a portion of investment moneyinto startup businesses.

Not the whole portfolio, because that’s entirely too risky. But enough that you’re in on the ground level with businesses thatyou believe have big potential, usingmoneythat won’t ruin you if you lose it.

These will not always pay off; morestartups will fail than succeed. But by taking the chance, in a contained way, you open yourselfup to that chance of meteoric success.

Meadowsalso points out the necessity of minimising downside risk, so that as youopen upyour chances for success, you’re minimising the possibility of it all being derailed by a struck of bad luck.

While itmayseembanal, on that list is getting insurance. Asmall cost permonthand you reduce the likelihood of losing everything to a medical accident, or natural disaster.

Another on the list is certain drugs, that while momentarily intoxicating, could quickly pull youdownthe rabbit hole of addiction and financial ruin. Asmall upside, ahuge potential downside.

It’s an approach he then goeson to apply tomanyareas of life; take opportunities that could lead to a moonshot success, shun those that could lead to a pit of doom. Maximise the potential for unlimited success, take out the possibility of bad luck attacking you.

It’s in embracing the instability, making the most of good instability, and making realistic plans to avoid bad instability, that you can find opportunities for yourself.

Onthe list of areas where it’s worth spending a little for the potential to get a lot, Meadows includes reading.

Hepoints out that for $10 you can get a book thatmay be terrible, and that you stop reading it. Or youcould find one that puts ideas in front of youthat you’d never considered before, leading to a ‘viewquake’. His book certainly has the potential to be the latter, formany people.

The Herald’s Cooking the Books personal finance podcast is here to get you the tips you need to weather

the financial storm. Hosted by Frances Cook, with a new expert on

each episode.