Thursday, November 1, 2012

Living Risk

I said "If you don't take a risk in life, are you really living?" in a recent discussion with a friend. 

In fact, every day when you walk out the front door you are taking a risk - a very calculated one and with low probabilities of dire consequences - but still risk.  The real issue is that we all differ in the type of risks we take, the amount of risk we take, and when we take risk. 

Risk is the currency of return.  No risk and no reward. Which is why I believe life becomes boring without some risk.  However more risk (with possible more or less return) is not always better.  But the fear of risk can freeze an individual from deciding or implementing an action. 

This came up in discussion today about the stock market.  Loss aversion (preference to avoiding loss vs acquiring gains) sets in at times and limits our desire to take risk. With the market (S&P500) continuing to advance toward the October 2007 high (1,562), emotions about risk begin to take hold.

The talking heads on CNBC refer to this as "risk on" and "risk off" - making sudden and complete moves in either direction of taking large amounts of risk or alternatively reducing risk to zero. However the prudent person doesn't use this approach to life (on or off).

Your "Return on Life" is dependant on how you live with risk.

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