Risk is a subject so inseparably attached to wealth building that I had to include it as one of my first principles. It’s something I’ve covered several times before, because it’s so important.
You can listen back to an early discussion of it here, or this episode from my investment masterclass. I also interviewed Paul Resnik, founder of risk-measurement firm Finametrica, and then I covered it in two consecutive sessions right at the start of Season Two. There’s a quick video, too. Hopefully you’ll find something that helps.
Everything you Need to KNOW
1. Risk is Everywhere
Risk is an ever-present part of life. From the second you wake up to the minute you lay your head back down on the pillow, you have successfully navigated goodness knows how many risks. Without an element of risk, we’d never move forward in any sphere of life.
If the Wright Brothers had never taken the risk of getting airborne, we’d still be sailing to New York. If Yuri Gagarin hadn’t done the first manned space flight, we wouldn’t have the marvel of the ISS pushing forward the boundaries of science.
Life without risk would be interminably safe and dull. Risk is part of what gives life its zing. For that, if for no other reason, it should be celebrated as a good thing, at least in careful measure.
2. Risk is Good
Risk is a good thing, at least in manageable doses. No-one wants to live life permanently on the edge. Like alcohol and gambling, there are sensible limits. Risk should be welcomed, familiarised and embraced.
Familiarity removes a lot of the fear around risk, which can only be a good thing. With familiarity comes understanding, too, which when it comes to money, is a large part of helping you see things through to completion and not being turned aside by events or other temptations.
We definitely need to reset our feelings about risk. As an adviser, I wish the regulator would help us to do this with our clients. I understand the need for risk warnings, but even the word has so many negative connotations that I doubt we’ll ever fully turn it around.
3. Risk is a Lever
Risk isn’t something you just have to put up with but you’d rather avoid. Risk is a tool that you can use to grow your wealth over time.
There is an inextricable link between risk and reward. You take more risk, you will be rewarded for it, given long enough. The question simply is, can you stand the ride, and can you stick it out for long enough for the rewards to materialise?
The problem is that if you’re too afraid to use the tool, you won’t get the benefit from it. Usually, the antidote to fear is knowledge. If we can beat fear with understanding, then more of you will use the tools which have evolved to help you grow your money and in turn, help you live the life you want to live.
That truly is the reward for taking a measure of risk. It’s not a higher account balance or larger net worth, it’s the freedom to live on your own terms. With that in mind, isn’t some risk worth taking?