Recounting a personal experience may be the most effective way to explain why risk should be of paramount importance to investors.

In the early 1970s, when I was just nine years old, my father died of cancer. He had struggled to try and leave me a trust fund with enough money to finance my future college education. Since I had at least a decade to go until reaching college age when my father set up the trust, he put it into stock funds managed by a bank. From the end of World War II to the late 1960s, stocks had been in a wonderfully profitable bull market. The public was participating in stocks to the highest degree since 1929, and the prevailing wisdom was that if one just hung onto stocks over the long run, they showed a better return than nearly any other type of asset. (This type of environment should sound quite familiar to investors of the late 1990s.) Things did not go according to plan beginning in 1972. From 1972 to 1975, the value of that trust fund declined by over 70 percent along with the decline in U.S. and global stock prices of a commensurate amount (the S&P and Dow dropped by around 50% during this period, but the broader market dropped by much more than that). By the time I started college in the early 1980s, even the blue chip indexes had lost more than 70 percent of their value from 1972 in after-inflation terms. While my trust had recovered somewhat from 1975 to the early 1980s, it was nowhere near the level it had been before my father died. In the early 1970s/ he believed he had provided enough funds for me to go to an Ivy League schoolbut a decade later the diminished trust led me to opt for U.C.-Berkeley instead. In no way could the trust have covered the cost of an elite private school.

There appears to be no incompatibility in covenant theology, then, between either the idea of divine omnipotence, or that of the absence of any new right accruing to God from the alliance with man, and the offer of such a pact. Gods perfection and his desire to be glorified by a peculiar nation or part of mankind devoted to the celebration of his greatness, together with mans natural attraction to his own good, suffice to legitimize the institution of the covenant. Claiming that God derives no new right from this contract is not a valid criticism against covenant theology, not in general nor in its Hobbesian version. As A. P. Martinich rightly points out, it is wrong to believe that being a party to a covenant necessarily means acquiring rights; two persons may covenant to give something to a third one, by which they will gain nothing; thus the social contract deprives those who enter it of the right to everything they enjoyed in the state of nature.47 It would seem equally true to say that, from the observation that it is not necessary for God to covenant with man to expand his dominion, it is wrong to conclude that God cannot establish contractual relations with his creature unless one postulates that Gods actions must be determined by some extrinsic necessity, which would be quite un-Hobbesian.