Expectation versus reality

Consider the potential outcomes when buying stocks.

- Simon Brown

Nerina Visser of etfSA once said something about risk that has stuck with me. She commented that risk is when the unexpected happens. She was talking about exchange-traded funds (ETFs) and her logic was that if you bought an ETF to track an index, your expectation is that it will track that index and if it does, nothing unexpected has happened. So, falling or rising markets are neither a worry nor a risk.

Now, this sounds odd, because if the market falls, so does the ETF which tracks that market. But that is the point she was making, and it changes how we see risk. Instead of risk being solely about losing money, it becomes expectation against reality.