The term “risky asset” usually refers to an investment that carries a significant chance of losing value. But here’s the truth: anything can be a risky asset under the right (or wrong) circumstances.
From tulips to tech stocks, history has shown us time and again that no investment is immune from risk, particularly when hype and speculation are involved… and logical thinking goes out the window.
At Iron Point Financial, we believe that understanding the past and creating a strategic plan that suits your unique situation can be important keys to improving your future.
To illustrate what we mean, we will explore four historical examples of risky assets that led to financial ruin for countless investors:
- The 1637 Tulip Bubble
- The 2000 Dot Com Bubble
- Present-Day AI Investments
- The 2007 Sub-Prime Mortgage Crisis and 2008 Financial Crisis
We believe that each of these examples can offer valuable lessons in risk management and highlight the importance of diversification — one of the cornerstones of Iron Point Financial’s portfolio construction approach.
1. The 1637 Tulip Bubble: When Flowers Became Risky Assets
Between 1634 and 1637, a strange thing happened in the Netherlands: tulips became an unrivaled symbol of wealth and status for Dutch elites. This phenomenon became known as Tulipmania: demand for tulip bulbs surged, and prices skyrocketed.
At the height of this speculative frenzy, a single tulip bulb could sell for up to 10,000 guilders, which was about six times the average person’s annual salary at the time. In today’s money, that could be equivalent to almost $400,000 (i.e. six times the average US salary). Imagine that: $400,000 for a single tulip bulb!
Perhaps it should come as no surprise that, in 1637, the tulip market collapsed, and collapsed spectacularly: tulips became virtually worthless overnight.
What Made Tulips a Risky Asset?
- Speculative Hype: People bought tulip bulbs not because of their intrinsic value but because they believed they could sell them at a higher price later.
- Lack of Fundamental Value: The value of tulip bulbs was purely speculative, with no underlying assets or revenue streams to justify the inflated prices.
- Market Panic: When buyers stopped coming, panic selling ensued, which caused prices to plummet, and plummet quickly.
Learning Point: Contextualize & Avoid Speculative Hype
Whenever an asset’s value is driven primarily by speculation rather than underlying fundamentals, it can pay to be cautious. Widespread hype can create an illusion of endless gains, but the crash is often just as dramatic.
The problem with the tulips in this context wasn’t that they had no value; it was that their value was misplaced and blown way out of proportion — a bit like Pokémon or baseball cards today.
Tulips clearly had personal and social value — they were and are pretty flowers — but no individual tulip could ever be worth betting your house on, especially for the average person.
So while you might come across individual nostalgic outliers — like the $5.275 million Logan Paul paid for an Illustrator Pikachu, or the $12.6 million paid for the 1952 Topps Mickey Mantle card in 2022 — the average card price is usually (and very reasonably), much lower.
In other words, these are specialty hobby items, and should be treated as such; we would strongly advise betting your retirement savings on items like these. Instead, we suggest honoring your life’s work with intentional, strategic and balanced investment planning.
2. The 2000 Dot Com Bubble: The Risks of Overestimating Technology
During the late 1990s, the internet was hailed as a revolutionary technology that would change the world (and it did). Problems came, however, when investors poured money into tech startups with little or no existing revenue, largely out of FOMO (fear of missing out).
As you can imagine— or as you probably remember — this did not turn out well. By 2000, the bubble burst, wiping out $5 trillion in market value. Many, many companies went bankrupt, and countless investors lost their life savings.
What Made Dot Com Stocks Risky Assets?
- Valuations Detached from Reality: Companies were valued based on potential future profits rather than current performance.
- Unsustainable Business Models: Many startups had no viable path to profitability. They were burning through cash with no proven revenue streams.
- Excessive Optimism: Investors believed that “this time is different” because of the exciting new technology involved, and that the rules of business and valuation no longer applied.
Learning Point: Question Everything, Stay Rational
Just because something is new and shiny, that does not mean you should automatically buy into it.
We believe it’s always worth analyzing whether a company you are thinking about investing in has a sustainable business model, and whether the valuation makes sense compared to their current financial records. (For tips on how you might do that, see this helpful resource.)
In other words: stay logical and strategic; FOMO is very rarely, if ever, something to stake your life on. In our experience, that kind of emotional decision-making can be hugely damaging to your portfolio. Greg Liszka (CFP®, RICP®), President & Advisor at Iron Point Financial, phrases it this way:
“The biggest threat in portfolio management is somebody making an emotional decision, instead of keeping it intellectual. They’ll make a decision with their heart and their feelings, instead of their brain.”
That’s why we help clients create customized, strategic plans that can serve them for the long-term: so you have something concrete to refer to if and when things get tough.
The market may not always stay positive, but if you have a clear plan, and you stick to it, we have found that the situation usually improves over time.
3. Present-Day AI Investments: Betting on Uncertain Outcomes
Today, artificial intelligence (AI) could easily be described as the hottest trend in tech investing. Massive American corporations like OpenAI are investing billions, if not trillions, in AI research and infrastructure. [1] However, recent developments have shown that these high-stakes investments are not guaranteed to pay off.
Perhaps the greatest example of that was the surprise release of the Chinese AI model, DeepSeek, whose capabilities have already surpassed many American models at a fraction of the investment cost — and whose release revealed how risky it can be to bet big on proprietary AI technology.
This very recent example also shows us that nobody is immune to detrimental investing in risky assets, including the biggest and most powerful corporations in the world. Moreover, when the biggest names on the NASDAQ are involved, we have seen that this kind of hyper-focus lead to market-wide stock crashes when expectations are not met.
[1] Picchi, Aimee. “What Is DeepSeek, and Why Is It Causing Nvidia and Other Stocks to Slump?” Cbsnews.com, CBS News, 27 Jan. 2025, www.cbsnews.com/news/what-is-deepseek-ai-china-stock-nvidia-nvda-asml/.
What Could Make AI Investments Risky Assets?
- High R&D Costs vs. Uncertain Returns: Developing AI technology is expensive, and there’s no guarantee that investments will translate to profitable products.
- Disruptive Competition: As shown by DeepSeek, competitors can leapfrog established players with more cost-effective models, devaluing earlier investments.
- Market Volatility: AI stocks are subject to extreme volatility, as they can be influenced by technological breakthroughs or, equally, setbacks.
Learning Point: Beware of Betting Big on Uncertain Outcomes
Just because major corporations are investing in a particular technology doesn’t make it a safe bet. It is typically wise to diversify your investments to avoid being overly exposed to speculative trends. As Greg explains,
“My primary philosophy addresses risk first. I would rather manage to the proper risk level than try to get every cent out of some stock run. People are much more aware of their losses than they are their gains. That’s basic psychology: you feel pain much more readily than you feel joy.
So I like to manage that risk and identify where the potential shocks could come from. I don’t want to say ‘eliminate,’ because you can never eliminate all risk, and there will be down years. But if we can manage those and try to minimize them when they do occur, it can be easier to get through, and our clients tend to be happier.”
Instead of chasing the high of the ‘next big thing,’ then, we would advise taking time to plan out a unique investment roadmap that can move you towards your financial goals — to help you pay attention to what matters most to you, rather than getting obsessed over niche market trends.
4. The 2007 Sub-Prime Mortgage Crisis and 2008 Financial Crisis
In the early 2000s, banks and financial institutions aggressively issued sub-prime mortgages to borrowers with poor credit, packaging these loans into complex financial instruments known as mortgage-backed securities (MBS). For far longer than they should have been, these risky assets were given top credit ratings despite their underlying instability.
When homeowners began defaulting on their loans (which should never have been approved to begin with), the entire financial system collapsed, leading to the 2008 Financial Crisis. Trillions of dollars were lost, and millions of people faced unemployment, foreclosure, and even homelessness.
What Made Mortgage-Backed Securities Risky Assets?
- Complexity and Lack of Transparency: Most investors didn’t fully understand the risks embedded in MBS products.
- Overconfidence in Credit Ratings: Investors relied too heavily on credit ratings, which failed to reflect the true risk of default.
- Systemic Risk: The interconnectedness of financial institutions meant that the collapse of one sector led to a global financial crisis.
Learning Point: Understand What You’re Investing In
If you don’t understand how an investment works, it’s probably too risky for you to invest in it on your own. Generally speaking, it may be wise to avoid overly complex financial products. Instead, it could be better for you to focus on transparent, understandable investments.
A Personal Perspective: Building Iron Point Financial After the 2008 Crisis
The 2008 Financial Crisis was a turning point for many, and for Greg, IPF’s founder, it was the beginning of a mission.
Greg started the business in the aftermath of the crisis, building from the ground up with a vision to help people navigate risky assets more wisely. As he tells it,
“I came into the industry in February of 2008, during the Financial Crisis. It was a great learning experience because I got to see the pain that financial turmoil causes, and at the same time I didn’t have anything to lose personally.
I started without any clients, built the practice from there, and then moved from working under my own name to “Iron Point Financial” in 2014. The idea behind that change was to make it about something bigger than me: I just wanted to help people.”
If iron stands for anything it is strength, courage, and longevity — and that’s what IPF’s financial planning services are all about: meeting you at the point you need it, to help you get your financial affairs moving in the direction of your goals.
Taking this kind of personalized, strategic approach means way more than just mindlessly ‘chasing returns’ — it requires transparency, trust, and a healthy dose of risk management (e.g. through diversification and other foundational investment principles).
The Main Takeaway: All Assets Carry Risk… and Portfolio Construction is an Art
From tulips to tech stocks, history has shown that anything can become a risky asset. Whether it’s the latest cryptocurrency, AI stocks, or another speculative investment, the truth is that very few people win big, while many lose—and some in a life-destroying way. As Greg summarizes,
“There are so many different types of risk. Every asset has a risk — every single one. Even cash: there’s an opportunity cost there (“What are we missing by sitting and being safe?”) There are different risk profiles for different assets. Putting together the right profile that balances risk and return — that’s the art.
At Iron Point Financial, we believe in managing risk through artful personalization and diversification.
Instead of betting everything on the next big trend, we help clients spread their investments across a variety of asset classes, in a way that makes sense for their unique situation.
This Stuff Can Get Complicated—We’re Here to Help
Risky assets can be enticing because they promise high returns with seemingly simple solutions. But as history shows, they fail to deliver for the majority of investors.
At Iron Point Financial, we’re here to help you build a balanced investment strategy that aligns with your goals and risk tolerance.
If you want help navigating risky assets or building a diversified portfolio, simply reach out to us today. We’ll listen to your story, understand your financial objectives, and create an investment plan tailored to your needs.
Schedule an appointment with Iron Point Financial today.
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Iron Point Financial is here to empower you to secure a brighter tomorrow. We operate physical offices in Grove City, PA and Greenville, PA.
We primarily serve residents of Pennsylvania, Ohio, West Virginia and Florida but we also have security registrations for 22 other states across the continental USA.
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Disclosures
- A diversified portfolio does not assure a profit or protect against loss in a declining market.
