Money-Magnets.Net

Definition: Risk - hazard: a source of danger; expose to a chance of loss or damage.

Risk in money management is different in different people and certainly over my financial journey my level of risk has changed.

A big wealth secret is that BEFORE going into any kind of investment you want to calculate your maximum gains and your maximum losses. In most cases you can assume that your maximum losses will be the loss of everything invested unless you are borrowing money for an investment in which case you can lose everything and still owe money. This is possible in some share option deals where you borrow money to buy shares. If you lose all the money on the shares you still have to pay back the money that you borrowed.

Then work out your likely gains and losses. Although the maximum loss could be everything what is it likely to be? What is your maximum gain? What is the maximum gain likely to be?

Even once you know these kinds of figures you still have to factor in your fear factor. Your money management plan can tell you that everything is fine and that you can afford to lose a certain amount of money but personal risk will still determine whether you will go ahead.

Years ago my personal risk was such that I wouldn’t buy an investment property. Even though the tenants would be paying down the mortgage I could still imagine more things going wrong that going right and so I perceived it to be too risky. Now we have properties in several countries around the world and we are looking at investing in more.

There are several factors that changed my level of risk and they could change your level of risk too:

•    Mix with investors who have had ups and downs but are still successful
•    The only way to REALLY gain confidence in anything is to actually take action and do it. You can read books, do courses etc. but until you actually take action your confidence won’t grow.
•    Increase your personal financial education through, books, courses, networking etc.
•    Stop listening to the people who tell you that you can’t do it and yet have never tried to do it themselves.
•    Create a system show the profits and losses before you make a deal - this takes some of the fear out of taking action. For me this was creating spreadsheets but for you it may be something different.

My level of risk is much higher than it was and yet still lower than my husbands and that’s okay. People’s risk may still differ over the same deal even once the financials have been investigated. The trick is to invest within your risk limits so that you are still comfortable with your investments. There is no point in trying to attain financial freedom and yet have sleepless nights because you are worried over your money management.

So how do you find your level of risk? You can work out what you are and are not prepared to do by thinking about the types of investments that are available.

Once you know your level of risk then you can decide what sort of investments appeal to you and you can put that into your money management plan.

Wealth Quote: “Often the difference between a successful person and a failure is not one has better abilities or ideas, but the courage that one has to bet on one's ideas, to take a calculated risk - and to act.” ~ Andre Malraux