You Can’t Run From Risk

Greetings 

When you think about it, we all manage a wide variety of risks in our everyday lives. Driving on the freeway could be life threatening if we don’t follow the rules that are designed to help us manage the risk. 

That’s why we manage the risks of driving at high speeds by keeping our eyes open, driving defensively, wearing seat belts, and keeping our speed within reasonable boundaries.

That’s why it’s important to take the time to learn about different potential risks you might face when you put your money into an investment.

The first rule to investing in the stock market is: Always expect the unexpected. And there are three approaches to dealing with risk. You can avoid risk, take risk or manage it.

For example, putting a 747 airplane in the air has a lot of obvious risks. The aircraft weighs a lot, it travels at a high rate of speed, it carries large quantities of fuel. And it carries people through the air. Putting it this way, it sounds like a thing we as humans shouldn’t step foot on. But we do. 

Why?

Because we know that those risks have been well managed.

There are safety regulations put into place to keep passengers safe. We weigh the probability of something bad happening against risk.

Something similar when investing in stocks is called the risk/reward ratio. This is what helps you to evaluate the potential attractiveness of one trade over another.

There’s no magic number or one size fits all when it comes to evaluating risk. You’ll develop your own criteria based on tolerance for risk.

This is what makes Rich Dad different.

Sincerely,
The Rich Dad Company

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