I am sure that many of you will understand what I mean by the title, “Risk vs. Reward.” In just about any walk of life, if we do not take any “risks” our rewards by not doing so are generally much lower.
That is not to say there is anything wrong with individuals whom do not wish to take any risks, in financial circles these people are referred to as “risk adverse” and it is a perfectly acceptable view to take on both your everyday life as well as financial matters.
Taking Risks – Risk vs. Reward
There is of course a major consideration in taking risks and that is the higher likelihood that you may fail at whatever task you take on. Whether that is investing your hard earned money into a savings vehicle which is considered to be “high risk” or a lifestyle change which you cannot guarantee will work out.
Risks and Benefits
To illustrate this point further let me give you a personal example. When I was starting out in life and as most young men do, I wanted to get a house of my own. The cost of a mortgage payment, with what was my young and small income, was significant at that time. I didn’t have much room to move in terms of financial commitments but it did mean I could get my leg up onto the property ladder at the ripe age of 18 years. This was a significant risk to me, could I afford it? Would I have to sacrifice my social life? What about the hidden costs?
All these questions and more were going round my head (and my wallet!) but after weighing up all the options I decided to take the risk and purchase my first house. For me, it was the best “risk” I had ever taken and after only 3 years of living at the address the value of the property had raised by some 45%. This enabled me to move up the property ladder to something bigger and in a nicer neighborhood and some 20 years later; I have the house of my dreams.
The Risks of Failure
Things could of course have gone completely differently. If I had purchased this first home just 4 or 5 years ago the chances are I would not have made any money at all, in addition, I probably would not have afforded the large deposits lenders now require in the wake of the biggest financial meltdown for 50 years!
Consider the Risks
You will have heard of the term “calculated risks.” This is an excellent concept and helps people understand the pitfalls in taking actions. By assessing the background to the risk you are considering and looking at many of the details associated with it, you will be in a better position to consider the options at hand. Knowledge is most definitively power when discussing risks, gather everything you can about the problem and set time aside to consider them.
Even with taking “calculated risks” remember that risks are “risks,” you have to go into them with a open mind and importantly a mindset of success – the bigger the risk, the larger the reward, but just make sure you understand all the risk attributes as much as possible before making a decision.