1. Flow

When beginners first enter the investment world, most of them only know the numbers for profit and loss, which makes it hard to recognize the relationship between risk and returns.
But after learning to identify risks and the corresponding ways to manage them, most investors can make significant progress in their profits. Not understanding risk is like a fish that can only see the bait but not the hook.
To be able to eat the bait while avoiding the hook—that is, to seek the maximum profit within low risk, or even limited risk—we must understand the meaning of risk better than others.
What exactly is risk? Risk means that “the things that may actually happen” are more than “the things we are sure will happen.” We must face reality and understand that when we make this investment, there are certain things we cannot control or obtain information about.
We all like low-risk products such as government bonds, pension funds, insurance, index funds, and token staking. We assume they preserve value. Usually, these products are backed by the government, reputable institutions, or companies, and therefore tend to be more trustworthy. But the fact is that all of the above products still carry risks: there is a risk of an economic downturn; pension funds may go bankrupt; insurance companies can fail; index funds are affected by economic recessions; and in token staking, the project team may be liquidated by the lenders.
Some people particularly like high-risk products and believe that high risk means high returns. This is actually wrong. The correct way to think about it is that companies offer higher returns to entice investors into taking greater risks—for example, FTX offered a fixed annualized return of 8%, and Anchor provided about 19%