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Why you can’t avoid risk when investing

by Frugalist on October 22, 2026

Lots of dice bouncing around to symbolise lots of different risks at play

Risk is a tricky word to pin down. Some people might say “riding a bicycle on the road is too risky” or “I only have a cash ISA because shares are too risky”. Others will think those views are silly.

There isn’t a clear line between risky and acceptable. It’s a personal question of what you feel able to tolerate.

When it comes to investing, people fixate on the risks of the stock market:

What if the market crashes?
Will I get the return I expected?
How much can I draw down from investments each year without running out of money?

Those are all valid concerns. But they are far from the only risks out there.

What’s more, if you spend too much time focusing on just one risk then you are liable to make poor decisions.

As The Investor wrote years ago in The first law of thermodynamics and investing risk:

“Investing risk cannot be created or destroyed. It can only be transformed from one form of risk to another.”

So what’s risky for you? That’s for you to decide.

Risky business

Many kinds of risks are familiar both to bankers and to freelance writers penning personal finance articles.

The risk of not getting paid, for instance.

But there are also more specialist ones from the world of finance that are worth us thinking about. These include:

Market risk – the possibility that you don’t get the returns you were expecting, whether due to performance, interest rates, currencies, or commodity swings
Credit or counterparty risk – someone else can’t pay you back
Liquidity risk – when you can’t buy and sell assets as quickly as you’d like
Operational risk – what happens if the day-to-day running of your business stops working properly?

These map quite easily across to personal finance:

Market risk – when you don’t get the returns you were expecting
Credit or counterparty risk – if the bank or broker you’re using goes bust, are you covered?
Liquidity risk – relying on antique coins for emergencies? They might take a while to convert to cash
Operational risk – what if you accidentally sell your entire portfolio when you’re half-asleep, swiping on your phone, or you lose your passwords?

These risks all sound clear enough, at least in theory. But other risks are more subtle.

With enough risks, no target is high enough

Maisie wants to retire early. She already has £1,000,000 in her stocks and shares ISA – invested in a global shares ETF – and her budgeting software informs her she spends £30,000 per year.

After Maisie reads The Accumulator’s musings about the UK safe withdrawal rate, she realises that she can retire immediately, withdrawing 3.1% of her portfolio each year.

Great stuff!

But then Maisie tells some folk about her excitement on the Internet.

“Ah,” says EternalPessimist28, “but what if you live for another 50 years? You’ll need a bigger portfolio.”

“And what if you need a care home?” interjects LondonStockBroker. “You should be modelling for £100,000 spending per year after turning 80 to cover that.”

Maisie sighs deeply, and goes back to work for another decade.

Finding the balance

From a purely financial perspective, putting more years in might be the right move for Maisie.

But life is about more than just finances.

What if in the following decade, Maisie’s partner passes away? Or she develops a health condition related to her stressful job?

Clearly it’s not a good idea to retire without enough money invested. But waiting until you’ve minimised market-related risks could well increase your exposure to these other kinds of risks.

A little list of risks

Let’s dive into a few of these less commonly discussed uncertainties.

Risk Type	What is it?	How to mitigate
Sequence of returns	Once you stop earning, multiple years of negative returns can hammer your portfolio’s value	Build up a bigger pot, withdraw less, or return to work. Take steps before it happens
Cognitive decline	If your mental capacity starts to decline, you could make poor decisions or fall victim to a scam	Work with a financial advisor, explore annuities, and set up power of attorney before you need it
Sentimentality / rigidity	Hanging onto strategies that worked before in the hope that they’ll work again or continue to work forever. For example, waiting for a new NFT boom	Maintaining an open mind and re-evaluating your strategies and performance every so often, or paying for advice
Longevity	Planning your retirement funds on the assumption that you’ll die by a specific date	Remember that life expectancy is heavily impacted by your current age. Plan to last for more years than average
Forced early retirement	Your health might force you to retire early, or a redundancy later in your career could prove hard to come back from	Consider critical illness and income protection insurance. Don’t rely on your salary continuing indefinitely
Family	Principally divorce, but could also include caring for and supporting children more than expected, which could increase costs and reduce capital	Don’t lecture your other half about types of risk. Buy them something nice
One more year syndrome	If you get completely obsessed about mitigating risk, then you’ll never retire	Try not to worry so much

It’s worth taking the time to write out all of the risks that might impact you.

Are you weighting all of them in the same way? Are there others that you’ve forgotten about, or that you’ve deliberately swept under the carpet because they’re too painful to think about?

Or is there perhaps a risk that keeps you awake at night, when it’s really no more threatening than the other risks on your list?

Risk is not all the same

I find it crazy how some people dedicate most of their financial planning to market risk, and then barely give any thought to issues such as longevity, life insurance, or how much they should trust their broker.

You’ll read personal essays going into thousands of words about how somebody plans to minimise the risk of withdrawing too much from their portfolio – adjusting based on various market signals and statistics.

But then a day later the same author will confidently assert that everyone should invest 100% of their portfolio into equities and that nobody needs an Independent Financial Adviser (IFA).

That’s not to say that you can’t invest 100% of your wealth in equities, or that you need an IFA.

You do you.

Rather, the point is that people can get hyper-fixated on certain specific risks, which sometimes seems to crowd out the attention they might give to others.

Rushing roulette

Consider somebody who focuses every day on maximising the amount they put into their ISAs, but who suffers a serious injury and has to quit work. They will surely regret having skipped income protection insurance in order to slip an extra £50 into the ISA each month.

Or take someone who strips their expenditure back to the absolute bone so they can retire in a decade, when they plan to withdraw just 2% of their portfolio each year.

In theory they’ve put their finances on a solid track to FIRE. But if their spouse and kids hate living on Pot Noodles and wearing clothes from Oxfam, the retirement plan may collapse after a couple of years as divorce looms.

Alternatively, you might deal with one risk and forget about all the others.

I once spoke to an underwater welder who told me they didn’t need a retirement plan because they were almost guaranteed to die on the job.

I guess that’s one approach to longevity risk.

Early retirement remains an option

Personally, with each year that passes I am less worried about stock market risk.

That’s not to say that I don’t care about my investing returns or the next bear market. Of course I do.

The problem is that if that’s my only concern, then I’m leading myself down a path of wanting to save not 25 times my annual spending to retire, as per the famous 4% rule, but perhaps 33 or even 40 times that amount to feel more secure.

These days I’m more concerned about the opposite danger:

What if I wait until I’m 58 to retire, and then find my health is completely wrecked?
What if I miss the next decade of my children growing up whilst I’m in the office?
What if I drop dead before I hit my number?

Sure, we all have to accept there are risks in life.

But if you’re striving to stash enough in investments to take a punt at early retirement, then you might try to mitigate the worst of these other risks too.

For example, if I’ve hit the point where my annual spending is equivalent to 4% of my assets and yet I choose to delay retiring for another five years to bring that down to 3%, am I really taking the less risky option?

It all depends what kind of risk I care most about.

One risk to rule them all

You cannot negate every financial risk out there. Instead, you must figure out what most matters to you.

Is it retiring with the (near) certainty that you’ll never run out of money?

Or perhaps you’re less bothered about never needing to work again – rather, you just want to know that you’ve got enough invested to cover the bare essentials if you do lose your job.

Plan accordingly.

Or maybe the objective is to retire quickly, maybe before your kids move out, or whilst you’re still fit enough to hike around the world?

In that case it might be worth modelling a higher withdrawal rate – knowing you might have to go back to work one day – in order to experience your once-in-a-lifetime adventure.

I can’t tell you what retirement target is right for you, how much you need invested, nor the rate you should be withdrawing it at. (Though I know a guy who can help you with that.)

Nor can I tell you that you need to retire at 40, or that you should eat nothing but beans and rice to free up more cash to pay off your mortgage.

I’m just saying don’t lose sight of everything else in your life in pursuing a narrow financial goal.

That seems to me to be the biggest risk of all.

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Gold GBP: historical asset class returns

For MAVENS and MOGULS by The Accumulator on October 20, 2026

Getting a grip on asset class behaviour can be hard when there’s a fire hose of data gushing in from all angles, often from sources unknown, typically quoted in nominal US dollars (USD), and sliced and diced to suit the author’s purposes, not yours.

So today we’ll try to swim against the tide by posting the long-term numbers for gold since 1900 – priced in pounds, fully cited, and accounting for inflation.

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Weekend reading: Knocking the covers off

by The Investor on October 17, 2026

What caught my eye this week.

I thought on Monday that a then-just-published post from Trend Labs giving a fun rationale for buying bonds would make good Weekend Reading fodder later in the week.

Weekend Reading – featuring the week’s best money and investing articles from around the web – can be read by any logged-in Monevator member. Alternatively please subscribe to our free email newsletter to get future editions direct to your inbox.

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Surviving economic meltdown

by The Engineer on October 15, 2026

Image of a man trying to survive after an economic meltdown

What kinds of catastrophes would you hope to survive? Is preparing for an economic meltdown even on your To Do list?

Can you protect yourself from extreme events with judicious investment decisions? Is it even worth trying?

If it’s a giant meteor heading towards Slough then you’d want to go in the first impact. Slough might gain something aesthetically, but it wouldn’t leave a future to relish.

But what about a more modest society-rattling scenario? Some kind of economic collapse, say.

How might such a scenario unfold and what will it do to your investments?

My experience of economic meltdowns is modest. So rather than making up my own scenario, I’ll lean on someone else’s imagination.

The Mandibles

In her book, The Mandibles*, Lionel Shriver follows the plight of one family in their attempts to survive the mother of all economic meltdowns. It’s based in the US but it’s not too hard to imagine a UK parallel.

In the novel, runaway US debt turns international investors sour on Treasuries. The dollar loses its privileged position in favour of a new international reserve currency, the bancor. The US is excluded from the new currency bloc, however, and in a fit of presidential pique the US defaults on its debt.

Further beset by a wide-scale cyber failure, a flailing government turns to money printing and capital controls. The ensuing hyperinflation leads to nationwide economic and social breakdown.

Sounds plausible.

The permanent portfolio?

Faced with such a situation how would you like your investment portfolio to be positioned? Is there any mix of asset types that would help?

Who knows. But let’s look at what happened to the Mandibles.

Equity and Bonds

Mr Mandible senior started the book with a vast equity and bond portfolio, the inheritance of which had his offspring jockeying for position.

Unfortunately, the entire US finance system ground to a halt after the debt default. It never recovered in its original form. The value of the Mandible’s portfolio dropped to zero before the end of chapter one.

A complete and permanent failure of stock markets has happened before. The clearest examples required a communist revolution, as in Russia in 1917 and China in 1949.

Other examples often followed war. For example in Germany in the aftermath of WWII, where hyperinflation followed by currency reform effectively wiped-out pre-war investors.

In short, equity and bonds may not be the rock to cling to in a catastrophe.

Cash

Real-world examples of hyperinflation making cash next to meaningless are plentiful.

In post-WW1 Germany, workers were paid twice a day because cash was losing value so quickly. The price of bread went from 250 marks to 200 billion marks over the course of 1923, with subsequent (possibly apocryphal) tales of people taking wheelbarrows of cash to the bakers.

In 2009, after an intense bout of hyperinflation, the government of Zimbabwe released a 100 trillion-dollar note. Hopefully the wheelbarrows could be left at home for a few days.

The Mandibles suffered a similar fate. In the early stages of the crisis, the one remaining family member with any cash coming in needed to spend it on food the same day, as it wouldn’t be worth much a day later.

By the end of the book the dollar had disappeared entirely, to be replaced by the bancor.

Gold

For the Mandibles, gold was still very highly valued but that led to its own problems.

Any gold held by a nominee financial institution disappeared overnight, along with the equities and bonds.

Beyond that though, the US government outlawed the private ownership of gold. Enforcers went door to door to confiscate all gold items, from jewellery to gold teeth. Houses were ransacked and residents subjected to vigorous interrogations. Only those with the most secret hiding places, nerves of steel, and an impenetrable poker face managed to hold on to something.

Again, history suggests this is a credible response to currency and debt crises.

Whilst not quite the same brutal confiscation suffered by the Mandibles, both the US (1933) and the UK (1966) have previously deemed it necessary to restrict the private ownership of gold.

Property

Freehold property ownership proved a better investment for the Mandibles. Whilst in the short term they were thrown out of their house by gun-wielding squatters (who were later thrown out by even scarier gun-wielding squatters), once some sort of normality was restored a few years later, property ownership was reinstated.

Communist revolutions tend to be less kind to property rights, but if you can avoid those then it seems there’s a fair-to-middling chance you’ll get to keep your house by the end of any upheaval.

Although you may need to budget for a new kitchen and carpets by that point.

Guns

Guns often seem to play a key role in apocalyptic tales of human endurance, but starting gun fights is not a good survival strategy.

As we saw with the squatters, there’s always someone else with a bigger gun. It might be best to stay out of the arms race altogether.

Skills

Much more useful is to acquire some practical skills. If you can grow food, fix the roof, or dig a cess pit, you will find yourself in demand.

Developing a new skill is the greatest investment of all. It cannot be confiscated and will pay you dividends for ever. But you need to pick the right subject.

One of the older Mandibles was an economist back when the economy was still functioning. While his offspring fought for their collective survival, he dedicated himself to writing a thesis on why he was right about everything all along, despite not foreseeing the economic collapse.

Spoiler: he did not survive until the end of the book.

(Some less generous readers may think that economists aren’t of much use even when the economy is functioning.)

Survival

Some of the Mandibles did survive to see some sort of order restored. Key to this was joining a small community on a ranch owned by their uncle. Which was handy.

Survival is hard on your own. You need friends with complementary skills to make a go of it.

One of the Mandibles even managed to hang on to some gold throughout the whole ordeal. That helped them get back onto their feet.

Plan A

So there you have it. Own a property, bury some gold in your garden, practice your poker face, get some friends, and go to carpentry evening classes.

Survival guaranteed!

But what if the next real disaster doesn’t look like this? Will any of the above help you when it comes to the crunch?

Or maybe there won’t be a disaster, but you end up eating cat food because most of your portfolio is buried under the Hollyhock.

Plan B

I do not have gold buried in the garden (although of course I would say the same if I did). And I’m told my face always betrays exactly what I’m thinking – which can sometimes be embarrassing but more to the point means I would not fare well under interrogation.

I do own a property, and I maintain good relations with my daughter and her partner who live in a rural area and grow some of their own food. But my motivation for this was not related to surviving economic meltdown.

Whilst a cautious approach to investing – founded on diversification and a hefty cash buffer – will hopefully enable me to ride out the ups and downs of the market rollercoaster, I have no contingency plans for anything worse.

While the sun is shining, I will enjoy my good fortune in life and maybe go out for a walk. I’ll worry about the gun-toting squatters when they turn up at the door. If I’m lucky they never will.

Fingers crossed.

^{*Links marked with an asterisk are affiliate links.}

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