(<2 min read time)

A client recently said "we are not risk takers Ben..... that is, unless we know exactly what we are doing, then we are aggressive!".

I thought that after 17 years in the profession, this was a great explanation of our relationship with risk. Understanding the risk leads to being comfortable with it..

Think about it. As kids we were all afraid of the dark. But when the lights turned on and we understood what was or wasn't there, we were ok. Also, do you remember how risky it felt to take out a loan to buy your first home? I can, but amazingly, as you would have, I got comfortable with the loan very quickly.

Getting comfortable with risk is good as it as it allows us to make smart investment decisions like buying your fist home, buying an investment property, starting a diversified investment portfolio or maybe just contributing to and managing your super fund.

As human beings we have the uniquean amazing talent offor being able to get comfortable with risk. However this 'comfort' with risk has a very dark side.......

Sliding into a 'risk comfort zone' and taking on too much or bad risk be catastrophic.

This can manifest in people becoming comfortable with 'bad risks':

  • My super/investments are returning spectacularly let's take some more risk and try and squeeze a little bit more return. What can go wrong? ...... Risk!
  • I don't know how my super is invested but hey, it's going ok so I'll leave it alone ...... Risk!
  • I've never had life insurance and wow, I've never needed it...... Risk!
  • Life is pretty good now, I used to worry about how our retirement looks but now well it has been so long I just think we'll deal with it when it gets here ...... Risk!

My challenge to you this month is to reflect on your financial positon and write down two risks that you have become comfortable with. Assess whether you really are comfortable or whether you have just dangerously fallen into your risk 'comfort zone'.

Then either fix it or get advice on how to fix it.

Have a great month.

Ben Law.