Are you Taking Enough Risks?

Every pound coin you invest it like a small ship working for you, every minute of every day.

It would be doing business with an unknown market or going a little further afield than was previously thought possible. Now imagine stepping foot on board your cargo vessel.

What is Risk?

Risk is a slippery and elusive concept which is little understood especially with investing however the dictionary definition of risk is ‘the situation involving exposure to danger or harm’. In investing the aim to get the most rewards with taking the correct level of risk for their situation. Every day we encounter risk. Just going to work we are taking some kind of risk, the world is an unpredictable and unknown environment which can never be risk-free. Even if you never leave the safety of the harbour walls you are missing opportunities that you may have received by applying for that job, asking the girl you want to date or putting your money into the stock market. Risk is an unavoidable part of the investment process.

Every day we encounter risk. Just going to work is taking some kind of risk, the world is an unpredictable and unknown environment, which can never be risk-free

Think of these ups and downs of volatility like the waves in the ocean. The more risk you take the bigger the waves.

Risk is measured by the volatility of returns called standard deviation. This measures how wildly the investment moves up and down. The greater the standard deviation, the greater the volatility and therefore the associated risk An investment with returns fluctuating wildly (think about cryptocurrencies in 2015–2018).

Think of inflation as the wind against your cheek. you may not notice the breeze but over time there is a huge difference on how far you get between sailing with the wind in your face or blowing at your back.

The hard route often turns easy and the easy route can turn hard.

How to reduce your risk?

Sailing a ship in the 17 century faced many dangers, risk treacherous sea, bad weather, piracy even mutiny. These hazards mean that a merchant’s fortune could literary disappear overnight. Like investing today there were three ways to reduce the risk you took.

The best investors think differently from the rest. Learning to identify an opportunity to buy or sell does not mean that you have learnt to think like an investor.

The three ways to reduce your risk is to use insurance, have more reserves or to diversify your cargo. Reducing your risk means that you are more likely to make a profit, it will also give you peace of mind that you will not lose all your precious cargo and your life’s savings overnight. This will give you a better night’s sleep.

The amount of risk you should take all boils down to how well you want to eat versus how well you want to sleep.

Neil Doig is the Director of Money Tipps a money coaching company. Money Tipps educate and inspire better investing without paying expensive fees.

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Millennial Money Mindset

Millennial Money Mindset

Educating and Inspiring Better Investing | Author of Millennial Money Mindset: If you want the Fruits you need the Roots and Football Formation Asset Allocation