Risk It All on Black

Hey there Money Saver! Welcome back to another week of How to Save A Buck, where we explore ways of saving money in personal finance, credit cards, and investing!

Risk is like playing a game of Jenga. You know the tower will fall at some point. But the game's goal is to continue stacking higher and higher, hoping it won't fall on your turn.

In personal investing, the blocks are dollar bills. And instead of falling, they could go down or up. Your hope is that your tower will continue to get taller over time.

Risk = possibility of loss or injury. It is an essential part of life, and it is impossible to avoid it.

To prepare for it, it's important to see how others have managed risk. We'll also examine ways in which you can leverage risk to grow your wealth and even save money.

The concept of risk has been present since the beginning of civilization. Long ago, people faced natural disasters, wars, and disease. They found ways to handle these risks, like building shelters, forming alliances, and creating medical treatments.

As society evolved, so did the concept of risk. In his book, Against the Gods: The Remarkable Story of Risk, Peter L. Bernstein shows how humans have managed risk with the emergence of mathematics and logic. These tools allowed humans to quantify and measure risk.

These abilities have transformed today’s wealth. Corporations, insurance companies, and nations use risk management to assess their growth, potential losses, and any number of problems they may face. They have developed various ways to deal with these risks, such as insurance, cybersecurity measures, and environmental regulations.

One of the most important characteristics of risk is uncertainty. The future is unpredictable, and it is impossible to know with certainty what will happen. However, it is possible to estimate the likelihood of certain events occurring and to take steps to mitigate those risks. Hell, the ancients did this and they survived!

There are several ways in which the everyday person can use leverage risk to help them grow their wealth and even save money. Investing in the capital markets is one way. While the market itself is uncertain, people can leverage their money to earn higher returns than they would by keeping their money in a savings account. Risks involved include market volatility, company bankruptcies, and geopolitical tensions.

The Risk/Return profile of the stock market is higher than say, keeping your money in that savings account. A savings account typically earns lower returns but also contains less risk.

So what can you do to mitigate risk? Well, of course, it depends on how much risk you want. In today’s investment world, a few tools can help any investor, big or small, to ride the waves of personal wealth.

• Asset allocation: This is a strategy of dividing your portfolio among different asset classes, such as stocks, bonds, cash, and alternatives. Asset allocation can help you balance the potential returns and risks of your investments, as different asset classes may perform differently in different market conditions. This can also help match your investments with your risk tolerance, time horizon, and financial goals.

• Diversification: This is a strategy of investing in a variety of securities within each asset class, such as different sectors, industries, regions, and styles. Diversification can help you reduce the impact of a single security on your portfolio’s performance. Diversification can also help you capture the opportunities in different segments of the market.

• Dollar-cost averaging: This is a strategy of investing a fixed amount of money into the same investment on a regular basis, such as monthly or quarterly. Dollar-cost averaging can help you reduce the risk of buying at the wrong time, as you buy more shares when the price is low and fewer shares when the price is high. Dollar-cost averaging can also help you avoid emotional investing decisions, as you follow a disciplined and consistent plan. (REMOVE YOUR EMOTIONS!)

Risk is an inherent part of life. Every time you order take-out food you are risking your satisfaction. (And you mitigate this by reading Yelp reviews!)

The everyday person can leverage risk to help them grow their wealth and even save money. All investments involve risks, and it is essential to do like the ancients and use available tools to measure the risks you face.

After all, you don’t want your gigantic tower of Jenga blocks to crumble because you didn’t measure the appropriate risk. Do you?

Save On,

Chris