Cavalcade of Risk – Separating the Good Risks from the Bad
Life is full of of risks. Nothing in this world is assured, and a life spent seeking certainty will almost certainly lead to dissatisfaction.
Some of the very best things in my life have come as the result of taking risks.
Just about three years ago I asked my wife to marry me.
Only a few months later, my wife and I decided to try and have a baby. In just over a month we will have our second.
At the start of this year I decided to swallow my fear and finally start the blog I’d been thinking about for all these years.
I’m a person who tends to stay inside my comfort zone, but through all of these experiences, I’ve learned the value of taking risks. Life will pass us by and leave us with nothing but regrets if we aren’t willing to put ourselves out there every now and again.
But it’s also important to remember that we aren’t invincible and that there are some very real risks we face every day that we can and should protect ourselves from. The reality of that risk is why I keep a large emergency fund and why I’ve come to love insurance. I want to be able to take risks that have the potential to enrich the lives of me and my family, but first I want to create a stable base. That stable base is what allows us to jump off and seek opportunity.
Today I’m fortunate to be able to share some articles that talk about creating and sustaining that stable base.
Over at the Riskviews blog, they talk about the very interesting relationship between risk and return. Translating the point into a relatable personal finance message, imagine someone just starting down the road of responsible money management. In the beginning there’s often a lot of low-hanging fruit that will generate large returns with minimal risk. Things like starting retirement contributions or cutting out wasteful spending come to mind. But over time those low-hanging fruit disappear and the quest for better performance will only come at the cost of increased risk. The message? Make sure that your quest for continual improvement takes the risk of your actions into account. Good financial management takes into account the downside of an action as well as the upside.
There’s a lot of talk in the media about the amount of fraud that exists in government programs like Medicare and Social Security. But what about the other side? What happens when the government tries to prosecute you for a fraud you didn’t commit? Bob Wilson tells the fascinating and tragic story of the man who had to die to prove himself innocent.
From what I’ve seen, the talk surrounding the start of Obamacare is all over the map. Some people love it, some people hate it. Many people have some wild notions about where it will take us. My take is simple: we’ll see. It’s far too early to start making any conclusions about the long-term impact of these new laws. Over at the Healthcare Economist, Jason Shafrin wonders whether our health insurance system will start to look like Germany’s, with stronger caps on the number of patient visits a doctor will be reimbursed for. My only question here: do all those visits from Kobe Bryant count towards the cap?
Interesting to learn that the people hired to help individuals understand their choices in the new insurance exchanges aren’t required to go through any kind of background check. Henry Stern has the details. Moral of the story: be very, very careful before deciding to give out your personal information to someone you don’t know.
Michael Stack writes about the audit process for workers compensation, and in particular how the entire process can benefit from more real-time analysis. This is something I’ve seen myself in the healthcare business, where providers want information they can act on now, not just a summary of what they did in the past. It also has relevance for us in our personal financial lives. It doesn’t do you much good to look back on your life at 60 and realize you should have started saving for retirement. Start evaluating your financial situation now so that you can make the appropriate adjustments while there’s still time to have a positive impact.
Thanks to all who participated in this week’s Cavalcade of Risk. Next week’s host is Jay Norris over at Colorado Health Insurance Insider.
Photo courtesy of Angelo González
These look like some good articles that I’ll have to check out when I get a chance. Thanks for sharing, Matt!
I didn’t know you were having your second baby. Congrats!
Thanks Holly! I haven’t been talking about it too much. We’re really excited though.
First: Mazel tov on the new baby! Second: Thank You for a TERRIFIC Cav – what a great debut!!
Thank you Hank. And thanks again for the opportunity to host.
I was fascinated to find that my most wealthy entrepreneurs….the guys you think would be HUGE risk takers….were some of the most risk-adverse people I’ve ever met. What I learned from them is that pushing yourself beyond your boundary and then carefully evaluating all the threats will make taking action easier.
I think that’s a great example of knowing when to take risks and when to be conservative. I have a friend who runs his own web design business with multiple employees. It’s a pretty risky proposition for him, but it has a ton of upside as well. But all of his money is in cash, because he just doesn’t want to take risks in other parts of his financial life. I can certainly understand that.
One month! Christmas baby perhaps? I think about risk taking all the time. I tend to want to stay in my comfort zone too, but I know as an entrepreneur I need to be willing to try and fail a bit more. I can do that on some emotional level, but the financial part of it scares me.
Could be! We’re hoping he gets here a little earlier, but the due date is 12/21 so Christmas is certainly in play.
I’m working on taking inspiration from people like you and forcing myself out of my comfort zone. I think the discomfort is actually a good sign that I’m on the right track.
Huh, I’d never heard of this cavalcade before but I do like thinking about risk. I’m not sure I’m in the best position to evaluate my own perspective on risk. Sometimes I think I’m averse, but when I tell people certain approaches we take (e.g. – our next home savings bucket is only 50% cash, 30% total bond market, 20% stocks) we appear to be taking too many risks.
A lot of times risk is relative. If you don’t have a hard deadline by which you NEED a new house, then the upside of including some stocks in that savings might really be worth it. The best case scenario is have you have extra savings and the worst case is that you have to wait a little longer. For others that might be a bigger deal, and thus riskier. There’s no way to look at it from a one-size-fits-all perspective.
Those are some big changes for three years. Congrats on the new baby!
Thanks a lot Kim!
Congrats on your second baby! Also thanks for the great articles.
Thanks a lot!
Congrats! And kudos for making the leap into blogging 🙂
There is a general idea out there that risk is good. It’s not always good! But it can come with some reward as you’ve pointed out. Congrats on your second child.
Thanks a lot! There’s definitely a balance to be struck. That balance will be different for everyone, but it’s tough to live your life at either extreme.
Great quote about Life passing you by if you aren’t willing to put yourself out there. I am very much like you in that I don’t like to leave my comfort zone generally. But I’ve also learned the value of taking risks. I took a lower paying job in a field that was one I was looking to pursue. I went to grad school part time. I’ve always thought about starting a business or something, but those are always risky. Plus, being in a stable government job is a bit of a golden handcuff. Anyway, baby #2 is coming soon right? Exciting time!
Yep coming soon! Starting to get very exciting.
I hear you on the job front. It’s nice to have the security but it makes it even harder to take risks when the risk is losing something so stable. I think you just have to figure out what it is you really want and if it takes a little bit of risk to get there, it’s probably worth it.
I liked your emphasis on a stable base to allow you to take risks. I’ve made some odd choices over the years, that panned out really well, but in each case I was able to make that leap because of a firm foundation I’d built earlier that could absorb the blow if everything fell apart (although luckily, it hasn’t yet ;o) Great articles, too!
Great to hear! That’s exactly what I’ve tried to build for myself and my family as well. The ability to make choices we really WANT to make, that might look risky or “spendy” in isolation, but are made less so because of the stability we built in other areas. Glad you’ve been able to make it work!