What Risks should you be taking with your money?

"If you are not willing to risk the unusual you will have to settle for the ordinary". - John Rohn

Risk: Verb

Expose someone or something of value to danger, harm, or loss.

A well lived life will involve risk.

How much risk you decide to take on a business, personal venture or passive investment

will be partly driven by the confidence in your own decision making capabilities. The more you try and fail and learn from your mistakes, the more confident you will be in yourself and your investment decisions.

I made my first stock investment at 22 in Ramtron Semiconductor. I have no idea if I made or lost money on it but I was hooked. My branch out into real estate came with successes in the UK and some hard knocks in Florida.

The gains and losses I experienced along the way have helped me create a structure to assess whether a stock, business or piece of real estate is right for me.

Your structure will be different than mine but here are some initial broad risks to consider before considering some of the finer details...

1. Credit Risk

Will someone deliver on the goods they promised?

Will the company stay solvent, will the entrepreneur stay the course, will the investment manager be honest?

Before jumping into an investment, consider how much experience the team has even if that team is you. We don't know what we don't know.

Consider the reputation of the managers.

Listen to your instincts. Invest in things you understand and enjoy reading about so you know when to call bulls*t. For me, saying no to investing in things like biotech companies, an area which I do not enjoy learning about , became as important as going for it.

2. Liquidity Risk

Liquidity is the amount of time it takes to liquidate an Asset and turn it into cash.

If you are not able to Sell an Asset whenever you wish to, it holds liquidity risk.

Know what you are saving for and match up the parking of that money with the an assets liquidity risk.

  • Cash and Government bonds of Aaa countries generally hold little overall risk as does typically Whole Life policies held by AAA rated companies.

  • A house is generally medium risk but your perception of the location (deteriorating or up and coming) will influence your feelings about the risk.

  • Collectibles include Jewelry, Art, Wine and Vintage cars. The markets are inactive and hard to value or predict prices or length of time for sale.

3. Interest Rate Risk

The movement of interest rates upward can make it more expensive for an investor to borrow money to buy your asset or make other investments more attractive. This could decrease the value of your asset.

  • Corporate bonds generally carry more risk than government bonds.

  • Government bonds are only as safe as the government having the ability to repay them.

4. Currency Risk

Currency risk takes into account all the world political movements... This makes it very hard to assess but it's so important that you be aware of it.

I sold my flat in London in 2004, converted that money back into US$ and received $190,000. for every GBP £100,000. If I sold that flat now, I would receive only $130,000.

Politics elude me. That was luck and a reminder for future endeavors.

5. Calculated Risk

"A hazard or chance of failure whose degree of probability has been reckoned or estimated before some undertaking is entered upon." Merriam Webster dictionary

Calculated Risk is about taking the risks appropriate for you at the time of your life you are experiencing. Life is not linear.

  • Take the time to understand what the related risks are to any investment you consider.

  • Assess your physical and mental condition and current demands on time and energy.

  • If you decide to go ahead, then you are taking a calculated risk.

  • If it is something you want but are not yet prepared for it, record the goal along with what you would need to start and begin to work towards starting the goal.

"All dreams can come true if we have the courage to pursue them." Walt Disney


Recent Posts

See All