What should you know?
What risk is:
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- Your savings slowly being eaten away by inflation.
- Spending too much.
- Making reactionary investment decisions.
- Not insuring your income and your life.
- Thinking you can time the stock market.
- Not saving enough for your future.
- Investing too much in one stock or asset.
- Moving to cash during a temporary market decline.
- Not understanding that stock market odds are stacked in your favour.
- Failing to prepare for the unexpected.
- Choosing short-term comfort over long-term security.
- Missing out on the next stock market advance.
- Following the news rather than your financial plan.
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As a result, not achieving your cherished life goals…..
What risk isn’t:
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- Your investments temporarily fluctuating in value (AKA volatility).
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Why should you care?
The Oxford Learner’s Dictionary defines ‘Risk’ as “the possibility of something bad happening at some time in the future; a situation that could be dangerous or have a bad result”.
Understanding ‘volatility’, and detaching it from ‘risk’, is a fundamental step in becoming a successful investor.
‘Volatility’ refers to the short-term price fluctuation in stock markets. This is a normal part of the investment journey and if your investments are correctly structured, it should not be feared.
‘Risk’ is a much broader topic and one which, if misunderstood, can result in real loss of capital or, more importantly, your standard of living. As you can see from the list above, ‘risk’ comes in many forms, and in-action can often be just as dangerous as in-correct action.
