Posts tagged risk
Financial Priorities: When to Take Risks vs. When to Play it Safe


Challenges and risks
Investing is the one sphere of life where victory, security, and success is always to the minority and never to the majority. If everyone agreed about its merit, the investment is inevitably too dear and therefore unattractive.
— John Maynard Keynes

Ivan here. 

Here’s a list of things most people find risky: 

  • Asking for a raise ("What if my manager says no?")
  • Talking to a stranger ("What if it gets awkward?")
  • Moving across the country ("What about my family and friends?")
  • Moving abroad ("What if I get homesick?")
  • Starting a business ("What if I fail?")
  • Joining a startup ("What if it doesn't work out?")

And here’s a list of things most people find safe: 

  • Buying a new designer bag or pair of shoes ("It's an investment in myself")
  • Taking a vacation abroad ("It's a once in a lifetime experience")
  • A $26,720 wedding and $5,978 engagement ring ("It's for the rest of my life")
  • Financing a new home with credit ("Every grown-up has a mortgage")
  • Financing a new car with credit ("I've had my old car for ages")
  • Pre-spending your paycheck with credit cards ("I can always pay it off")

This is just my way of illustrating the obvious: most people seek comfort and social acceptance and avoid discomfort and rejection. 

What Safety and Risk Mean

‘Safety’ is code for what most people think. ‘Risk’ is code for what most people aren’t willing or able to do. Aspiring to be like most people is to accept the results that most people get.

In some instances, the cost of not taking risks can be greater than taking risks, just as the cost of doing a ‘safe’ thing can be higher than the price we pay for safety. 

There are those who prefer not to live with so much uncertainty. Those who may be content with their lot in life, surrounded by family and friends, doing ordinary things that most people do and living safe, ordinary lives. This is totally fine. 

But what if the safety we’ve come to rely on is no longer safe going forward? What if safety is a more expensive illusion than we ever imagined? 

The coal miners in West Virginia thought they were safe. Just five years ago, accountants, pharmacists, lawyers, journalists, and taxi drivers felt like safer professions than they do today. 

In a market system, the more people there are seeking safety, the harder it is to come by. The fewer people there are seeking risk, the more cheaply it can be acquired. 

Safety is always expensive. Risk is always on sale. 

When Should We Take Risks?


When Should We Play it Safe?

Jennie and my position on this question has always been:

We should never hesitate to take risks so long as we ‘safely’ plan around those risks, focusing 75% of our energy on upside and growth, while using the last 25% to protect our downside. 

To summarize: 

  1. We should be taking risks in areas where most people aren’t willing or able to take risks. 
  2. We should be safe in areas where most people have been taught to be reckless.