By |Published On: Aug 1, 2022|Categories: Entrepreneurship, Financial Planning|

Determining your Riskiness

Thank you to all of the readers who responded to the post, “Your Compensation Risk Profile.” I received many questions, observations, and inquiries about this four letter word.

Some of them are:

“How do I know if I am a risk taker?”

“I need better risk management skills!”

“I think that there are good risks and bad ones, but I’m not really sure, can you tell me about them?”

“What’s the best way to be smart about risk?”

“I like risk, but sometimes it has cost me a lot of money.”

Different Perspectives

Simply, it all depends on how you frame it and I’d like to share a story from one of my readers, Megan. She is a successful healthcare entrepreneur and at the time of the story she was the co-founder of a business focusing on medication and care management services.

She told me a story about risk and how its interpretation depends on the person’s point of view. A few years ago, she had a meeting with an executive at a large company. During the conversation, the executive told Megan that she was a “risk taker.” She was confused by his comment so she asked for clarification. The executive responded by saying that she was trying to build a business.

“She would succeed or fail so that made her a risk taker.”

Megan didn’t see it that way. In fact, she told the executive that she thought he was the bigger risk taker. He responded.

“How do you think that’s true? I have a stable job at a big company.”

She responded by saying, “You work for someone else. What if you get a new boss that doesn’t like you? Your fate may be in one person’s hands. That’s could be perilous.”

She continued to explain that she wouldn’t fail in her entrepreneurial efforts. If this business didn’t work out, she would learn from the experience and start her next company. She will keep going until she succeeds.

Applying Risk Appropriately

The interpretation of risk depends on the person. In the story above, neither Megan nor the executive are right nor wrong. Some of you may agree with one more than the other, and some of you may be somewhere in between.

I helped Megan reduce the areas of her financial life that she deemed risky. Together we developed an extensive financial plan by reducing her taxes, establishing retirement accounts, and creating an investment portfolio that was appropriate for her situation and her dreams. Upon the sale of her first business, she received a very nice payout and our planning work that we had done beforehand resulted in a much larger pay day for her. As a result, she started and is now running her second successful business in technology enabled home care.

Drawing the Line

Oftentimes, many people think and talk about risk as threatening or risks that are harmful. However, there are good risks and there are bad risks. Most of the time, good risks have positive outcomes for you and you might not even view them as real hazards. Some of these include activities people take on everyday such as hopping on a flight, working on a long-forgotten skill, or investing in the stock market.

Bad risks tend to have negative outcomes for you. Some examples include jumping out of a plane without a parachute, betting it all “on red,” or unrestrained credit card spending.

When you take good risks, you win, and if you don’t win, you gain knowledge from the experience and will be more prepared the next time. I hope that this article helps with your assessment of risk and where it’s appropriate for you. If you want to talk more about risk, the markets, and how they work with financial planning, email me at [email protected], or schedule a free consultation.