Jeff Bezos, the founder and largest owner of Amazon says, “Given a 10% chance of a 100 times payoff, you should take that bet every time.”
Taking risk has certainly paid off for Bezos, but since we are not all Jeff Bezos, is it the right thing to do for the rest of us?
Carl Carlson, CEO and founder of Carlson Financial, said it turns out if you would have invested $1,000 in Amazon stock when it went public in 1997, it would be worth $2,200,000 today. But according to Jeff Bezos, nine times out of 10, it won’t work out.
So, the question is if I take a risk with my money - let’s say $1,000 - how much will it return to me and how much risk am I taking to get that return?
Carlson said usually the less risk you take, the less return you get. A savings account at your local bank may not have any risk, but you also are earning less than 1%. If instead of investing your $1,000 in Amazon in 1997 you put your $1,000 in a savings account at 1%, it would not be worth much today.
Carlson said with the savings account, your $1,000 would return you $1,200 after 24 years. If you would have put your money in the overall stock market, which most people refer to as the S&P 500 or the largest 500 companies in the country, it would have returned you about $4,000 after those 24 years.
The $1,000 investment in Amazon 24 years ago returned you $2,200,000 today. The same $1,000 in a savings account returned you $1,200 24 years later and the same $1,000 invested in the general stock market or S&P 500 returned you $4,000 24 years later, Carlson said.
You may be wondering how to figure out what to invest your money in and how much of your money in different things because you do need some money in a savings account and you probably should have some money in the stock market. You also might also want some money invested in a few really good smaller company stocks.
To help balance all of that, Carlson said you need to engage the help of a financial advisory firm. They can help you figure this out because it is different for you than it is for your friend, your neighbor or your coworker.