What Is Risk?
I’m actually feeling very intellectually curious about this question today. Because I’ve heard that “fortune favors the bold,” and yet, so does destruction. I’ve been told that I have a high propensity for risk, and yet, in many ways I am maybe the most risk averse of any of us. Which is it? Is risk the key to wealth or the chief pitfall to avoid? Am I a risk taker, or aren’t I?
Well, according to the dictionary, risk means exposure to potential danger, harm, or loss.
Hmm. It turns out risk is a very relative word indeed. Because to define it, you must decide what you consider dangerous, harmful, and valuable. It’s the things you find valuable that you will be inclined to protect against loss, harm, and danger. No one is worried about the risk of throwing their trash away, after all :)
One example of something I find valuable is my life. Now how risk averse am I? Well, I’ve never had an alcoholic beverage, smoked a cigar, consumed any recreational drug, or broken a bone in my body :D I sleep well at night, I exercise, I spend quality time with my loved ones daily, I honor a weekly Sabbath, and more. I can say these things not because I am holy, but because I am scared! Haha! The risks I’d expose myself to if I changed course are simply too much for me to bear. Are you tracking with me so far?
I also think other people’s lives are valuable. I think societies, cultures, and principles are valuable. I think the earth is valuable and all of creation within it as well.
Money has some value, too, but not intrinsically. Money is only valuable - useful, worthy of protection - if and when it is utilized to better the things which do hold intrinsic value, such as those I just mentioned.
So if money is not intrinsically valuable, and other things are exceedingly so, I deduce that risk cannot be understood as primarily a financial consideration.
If the only thing I may lose is money, but my life, my principles, others’ lives, societies, and the earth itself all will benefit - not only if I succeed, but even if I fail - then what risk is there? Isn’t bettering that which holds intrinsic value all money is good for anyway?
More importantly, how reckless am I if the only thing I may gain is money, but in order to do so, I must increase the probability of harm to the things I find so much more important?
To me, these are very, very real, serious, threatening, life-altering risks. I can’t overstate it.
Imagine if as an entrepreneur I started businesses that profit from preying on the addicted, lying to the uneducated, stealing from the impoverished, and endangering human lives, all while scorching the earth. You would hopefully never want to work for such companies, much less be a financial partner and co-owner!
Yet unknowingly, many of us may very well be doing just that through our 401k’s, mutual funds, or index funds. (If you aren’t sure whether any companies you are invested in through your funds are dangerous or risky, shoot me an email. I’m happy to dig through all of the fund prospectuses and company 10ks on your behalf) :)
For me, I prefer to know with as much detail as possible who and what I am investing in, I suppose because my low-risk tolerance dictates it ;)
Before even considering investment strategy, though, we each have to consider for ourselves what it is that we value. Then, and only then, can we determine whether we are managing risk accordingly.