Secrets To Success Part 9 – Risk Management

Friends, I have yet another secret to help you be fulfilled and successful, whether it be in business or life in general. This one has to do with Risk Management.

Risk Management

I find it rather humorous, in some ways, that many people will stash away a huge chunk of cash and take it to a casino to fritter away, yet when it comes to taking a risk that has a better chance of paying off, they are scared to do so. How can that be?

Hopefully, everyone reading this realizes that casinos stack the odds in the favor of the house – let’s face it, if the odds were in the player’s favor, the casino couldn’t stay in business very long. I am not saying that casinos are good or bad, I am simply stating that this is a risk that many people willingly take all over the world, without much thought. So why is it that so many people are willing to take a risk that is stacked against them, yet in other areas of their lives they are risk averse?

I think this could be due to self-confidence issues, which has been discussed previously. It could also be because they have not done the risk management calculations yet.

We all need to take a look at the risks in life, and the associated rewards, and carefully analyze them to understand if the risk is worth the payoff. This may sound elementary, but I assure you many people that are not successful in life forget about this.This is what risk management is all about.

risk management and ROI

You cannot expect to earn anything worth having without taking some risk, and if you take risk, you should do some risk management. I seriously doubt anyone reading this would take their entire life savings out of the bank and invest it all in a stock chosen randomly. That would be a very poor risk. However, by that same token, you cannot expect one cent of profit if you do not invest that money somewhere. The smart investor would do research, seek advice from those who understand investing, and take a calculated risk based on data and facts. The point here is simple – if you want the reward, you must take a risk.

Successful people have figured out risk management, can decide if it is worthy or not, compare the risk with the reward, and determine if the reward is worth it or not. If you were asked to invest $1,000 in an investment, with a 50% chance of losing all your money, would you invest in it if the potential reward was 10%? A 50% chance of losing all your money is not worth a $100 return on investment. However, what if that same investment had 50% potential to lose all your money, however the payout was $2000? In this case, you have a 50% chance of losing it all, and a 50% chance of doubling your money.This is a far better risk management scenario.

I realize not all risk is that straightforward, but the point still remains. If you see a potential area in your life where you are faced with a risk management scenario, be sure to analyze it thoroughly before proceeding. Also, be sure to remember that if you do not ever take a risk, your chance for reward is the same as your chance for loss – zero.

Consider these three points while you are learning how to take proper risks in life.

1. Do your Homework

Take a class, read some books, talk to others more knowledgeable than yourself in the area you are considering taking a risk. No one ever started a small business without taking a risk. I recently heard a story about  a businessman who, in 1971, took a big risk to start a business no one would have thought would ever succeed. Today, you probably know that business by the name Starbucks. I would say whatever his risk was, it was worth it.

2. Take Smaller Risks First

You don’t need to start out by starting a small business and getting into debt. Start out by getting your feet wet, then proceed. To use the example from earlier, you would not invest your entire life savings in a stock and go for broke. Start out by taking out a few hundred dollars, after following step 1 above, and investing to get yourself accustomed to the idea. You can then expand on that later, as you get more familiar with things.

3. Grow At Your Own Pace

Once you have mastered the idea of taking a risk, and have done the analysis, step out a bit further, and take a slightly larger risk. Just be sure to keep a level head, and keep things in check. This doesn’t mean you should ever do something that could be harmful to you or anyone else, just that you can grow into the idea of taking calculated risks.

I hope this gives you a better idea of how to deal with risk. No risk – no reward is certainly true, however risk without analysis can be just as bad – if not worse. Try taking a few risks, when the reward is there, and always remember to learn from your mistakes.