Risk and the perception of risk are two different things.  Many people think their decisions are based on reality, when actually they are based on false perceptions of risk.

For example, we have been led to believe that the traditional stock markets are safe, because they are large institutions ... run by really smart people ... regulated and overseen by various government agencies in charge of protecting us. 

But hasn’t investing in Wall Street become a lot like going to Las Vegas, where the house always wins?  Just look at the huge bonuses presented to tens of thousands of executives from companies that lost trillions of investor money.  Madoff and many others like him simply slipped past examiners, and the results have been cataclysmic for hundreds of thousands of investors and clients.

Obviously, regulation and oversight haven’t helped the average investor much these past few years.  And quite frankly, I’m not sure it ever did. 

Business is, or should be, about serving clients.  The great companies always do.   Credit default swaps on mortgage-backed securities -- whom did they serve?  Where was the client in this equation?  Or was this simply a way to make money in the markets, from the markets?  Gaming the system, as it were.  If so, it was destined to come crashing down. 

For the savvy investor, it always comes down to the basics of supply and demand.  Companies supplying a product or service that people want will earn a profit for serving the needs of others.  Great companies always focus on these basics, and over the long term, succeed. 

But there is another critical factor for investors to consider, and that is the stock market itself.  The market follows the rules of supply and demand, perhaps doing so in its most pure form.  

Please follow me in this mind experiment. 

Baby Boomers hold over $40 trillion worth of stocks and bonds -- or at least they did a couple years ago, before the market revalued them.  They plan to use these assets to fund their retirements.  If that’s the case, they must sell these stocks and bonds and turn them into cash to be spent at the grocery store, pharmacy, and golf course.

The significant question we need to ponder seriously is, “Who will buy these stocks?”  The Chinese, the Arabs, the next generation?  Who?  If you think stocks are on sale now, just wait.  Unless there were huge buyers lined up (who aren't there now), wanting to buy these stocks at higher prices (not likely) over the next 10 to 15 years, the fire sale hasn’t even begun.

So what to do?

Risk Versus the Perception of Risk

Many people drive cars, yet are deathly afraid of flying.  This is not logical, because we all know that, statistically, flying is between 60 and 200 times safer than driving, depending on how you measure the risk.

Obviously, fear is not based on logic.  Many people talk on their cell phones, changing lanes  while speeding in traffic on the way to the airport.  Only when the plane rolls down the runway do they start to feel fear. 

There are some great studies on why this is so, fascinating actually, but suffice to say that, while this fear is irrational, it is very real.  Some people succumb to it and won’t get on an airplane.  Most of us however, even if we are afraid of flying, suck it up and get on the plane anyway.  It is possible to get past the fear and get on with the business at hand.

So how does this example tie back into investing?  It simply goes to show that what appears or feels risky, may actually be a lot safer than what we know.  For example, ownership of property in Latin America, or even ownership in a development company working in the region, may seem like a great risk.  But is it?  Only an empirical examination will actually tell us. 

The plane is leaving, with or without you, and opportunity is on board.

What if a small amount of due diligence on your part would uncover the facts and reality of such an investment?  What if you examined this data under the light of objective scrutiny, and it showed that it was indeed less risky to own overseas property, or part of a development company, than owning shares of big blue chip companies like AIG, CitiBank, GM, and GE --  now down 50 percent from their 2007 highs.

Are you ready to take action and “get on the plane," despite any fears you might have based on perception, rather than reality?

Eighty million baby boomers are just now beginning to sell off the vast $40 trillion holdings of securities they own.  The price that they receive will be determined by the laws of supply and demand.  These folks will have cash in hand -- though less than they had expected --  to spend on their retirement.  But with less cash, what options will they have for a quality retirement?

Of this huge group of baby boomers about to retire over the next 20 years, almost a quarter, have expressed an interest in living part of their retirement overseas.  In addition to US retirees, nearly half (45%) of Canadian boomers plan to spend at least a month or more outside Canada in retirement, according to a TD Waterhouse survey last year. 

Surveys describe what might happen.  Even more relevant is what people are actually doing right now.   Today, over 500,000 retired US citizens already live outside the country, many picking up their Social Security check at an embassy or consulate outside the United States.  You see, this trend is not “going to happen.”  It is happening.

The harsh reality is that retirees will have less money than they anticipated.  How many more will consider the option of a life outside North America?

Will they rent?  Who is going to be their landlord?

Will they buy?  Who will sell them a home or condo built to North American standards...in a community where they can feel at home...in a country where they can afford to retire?

Why not you?

Buying homes and condos ahead of the curve is a good way to profit from the baby boomer retirement trend.

But even better, who is going to own the company that develops the resort retirement communities and builds the homes and condominiums that they choose to call home?

Imagine owning a piece of the premier company in the Latin America serving these retirees as they come south of the border, looking for a new home with all the comforts of “back home.”  Do you think forward-looking investors will make a nice return?

Here's a simple truth:  Every company that has served the baby boomers well over the past 60 years has enjoyed phenomenal success.  This is simply the next stage.   

An Ernst & Young report in 2008 shone a spotlight on the possibility faced by many future retirees  of living longer than their retirement savings last.  This possibility will most certainly have more folks looking south of the border for the high quality, affordable retirement they’ve always dreamed of.  (If you’d like a copy of the E&Y study, drop me a note and I’ll send it to you.    

You may already be tuned into the incredible opportunities outside North America.   If so, you are ahead of the curve and have a huge advantage.  Most folks will only consider doing something outside their comfort zone when necessity forces it.

By being part of a business that will serve those arriving consumers, you can provide something that is desperately desired and earn a nice profit as well.