LOUISE FAIRSAVE – Dancing with risks
THE ARTICLE two weeks ago dealt with the different types of risks, explaining risks and giving some examples. It is clear that risks pervade our lives.
We therefore deal with risk, knowingly and deliberately, or unknowingly.
Dealing with risks is like going to a dance. It just doesn’t make sense if you go to a dance to be a wallflower or, on the other hand, it would be exhausting to try to dance to every tempo with every possible partner.
In the first instance, you would be shooting yourself in the foot in terms of achieving the objective of going to the dance – assuming your goal is to enjoy the dance. Alternatively, the other extreme is self-destructive; even if not in the short-term, certainly it will wear you out in the long-term.
Similarly, if your goal is to invest, you cannot avoid risks. In fact, trying to eliminate risks would not even make sense.
You may as well get on the dance floor and tolerate the risk most suited to your situation. At the other extreme, to jump into the investment arena and grab all kind of risks is more likely to be self-defeating in the long-term. It makes all the sense in the world to enter the dance and look for some likely good, long-term partners and court them prudently.
I believe though that the more dancing experience we have, the more likely we are to choose suitable partners and get, or understand more about, the results that we crave. In fact, with more and more experience, choosing a partner is taken for granted as a relatively simple process as compared to our nervousness, self-consciousness and trepidation with our first dance.
And so it is with investing. You are safest not relying on anyone else to make such important decisions for you, like choosing a dance partner or putting together a suitable portfolio of investments. Personal choosing experience is indispensable.
It helps you to understand the nuances of the investment market and of your own emotions and reactions just like how we eventually learn to spot and engage a good dancing partner from across a crowded room.
Nevertheless, the proof of the pudding is in the eating, so sometimes looks can be deceiving. There is no absolutely sure way of choosing the best dancing partner or the best risk for you without some form of knowledge beforehand.
And just as an elderly dancer tends to avoid the new steps like dub and dancehall, preferring the better known and regal waltz, so too should the older investor avoid start-up and risky investments.
I therefore invite all my readers to dance with risks and find their comfort zone. It is also important to introduce your children to elements of dancing with risks. It is an important aspect of personal financial management as is the social skill of dancing. For the ones well suited to dancing with risks, they will find that they will look forward to dancing all night.
Louise Fairsave is a personal financial management advisor, providing practical counsel on money and estate matters. Her advice is general in nature; readers should seek personal counsel about their specific circumstances.