Should you take a risk? That is a question a lot of people struggle with in business and in their personal lives. We are tackling that question in this video, and I will give you a very simple answer to that question: Should you take a risk? Watch now!
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VIDEO SUMMARY
Risk is the heart of Finance. It is really what Finance is all about. When you purchase an investment, the purchase price is based off some assumption about what is going to happen in the future. Well you are never going to know what is going to happen in the future. Where there is uncertainty, there is also risk. So the question you struggle with is “Do you make the purchase? And at what price?”
I want to stop and talk about this in depth. Because this approach to dealing with risk, is the same approach you use throughout your entire life. Life is full of risks, and you are constantly grappling with the question, “Should you take a risk?”
Let us discuss some examples you might be dealing with in your business.
- Equipment purchase. Should you invest in an expensive piece of equipment, not knowing how the market is going to turn out next year?
- New product. Should you release a new product line, not knowing how it will sell?
- Career change. Should you take a new job, not knowing if the company will grow?
You are constantly making these judgement calls in your life. What Finance is really doing, is using an analytical process to think through the question “Should you take a risk?”
Let us look at the big picture. You can live your life without taking any risks. That is a very comfortable thought. You can stay in your home, never go out, never be threatened by anything, and just enjoy your life. But if you do that, you probably will not have any money, you are not being productive, you are not accomplishing anything great, you are just sitting in your house withering away. On the other hand, you can go out into the world and take risks and maybe strike it rich. It is a risk. One of the keys to be successful in life is figuring out how to deal with risk.
Now I have made a ton of videos on this channel about risk, including how to understand risk, how to analyze risk, and formulas to calculate risk. But let us forget the details for a minute. I think there is an easier way to answer this question. Instead of asking “Should you take a risk?” change the question to “How should you take a risk?” This reframes the whole issue. Instead of being about the decision, it becomes about the process of dealing with a risk.
I find that when most people ask the question “Should I take a risk?” they are really not asking that at all. They are talking about something they really want to do anyway. What they want is to find a way to take the risk, but do it in a fiscally responsible way. By asking how, it becomes about figuring out how to mitigate that risk.
Reframing the question is important. The first question, “Should I take a risk?” is binary. It can be yes or no. It could be either answer. Adding “how” to the question makes it the same answer every single time. You can use the same process you go through every time you analyze a risk… it is called Finance. Finance has been developing these processes for decades.
So if there is a decision you are trying to make. Let me give you a very simple way to think about it. Risks almost never work out in the short-term, but always work out in the long-term. This is an incredibly helpful way to think about risk. What it is saying is that risks almost never turn out the way you expect. You will try all these things and you will probably fail. But that is okay, because even if you fail, you will still learn something that will help you in the next risk. So all of these short-term failures over the long-term end up paying off.
So this should tell you two things. 1) You should take a lot of risks. If you know you are going to fail, you need to try a lot of things until something works out. 2) Never risk it all. Your goal is the long-term payoff, so do not risk it all on a short-term risk. Whenever you go after a short-term risk, you should always have a backup plan to recover if it goes horribly wrong. Because in the long-term, you can always make your money back if you protect yourself.
I hope this got you thinking about the importance of risk in your life. Really any decision in life has risk to it. The better you can get at thinking about risk, the more successful you are going to be.
Leave a comment down below letting me know what you think!
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Neither Zach De Gregorio or Wolves and Finance Inc. shall be liable for any damages related to information in this video. It is recommended you contact a CPA in your area for business advice.