Risk


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How understanding your personal risk profile can help you to be more successful.

The full chapter on Risk and Risk Aversion will enable you to understand where risk aversion is holding you back from achieving what is possible in your life.

Overcoming unnecessary Risk Aversion means succeeding with controlled risk and joining those who profit by taking small, well defined business risks.

You are somewhere on the continuum between being a risk taker and being risk averse. Risk aversion is a measure of your preference for uncertainly over certainty. If you are too risk averse and conservative you limit your ability to make decisions and therefore your ability to succeed. In my experience most people are somewhat risk averse. I have also noticed that those who take controlled risks in career, business and investments are generally the most successful.

For example a risk averse person might prefer to stay in a low paid job than move jobs, or start their own business; even when such a change is likely to bring about increases in income, job satisfaction, status and so on.

It might be useful for you to think about how risk averse you are. One of the main regrets at the end of people’s lives is they did not take a leap of faith or an opportunity when it was presented to them. If you are too risk averse this is a significant possibility.

If you are very risk averse and this is affecting your decision-making, start small and get some confidence by taking small risks. Alternatively change your mind set by concentrating on what you are missing out on by not taking a controlled risk.

Of course risk aversion is not confined to business and finance. We all have risk thresholds for relationships, career, adventure, extreme sports, vacations, overseas travel, selling ourselves, asking others for their time and so on.

Tip #1 Evaluate Your Threshold
It is important to evaluate where your risk thresholds are and to think about whether your current risk thresholds are causing you to limit your opportunities, outcomes and experiences. Write these down.

Tip #2 Take Small Steps
If you recognize you are being held back by risk aversion I recommend taking small but deliberate steps to push out the boundaries a little bit at a time. As you take small steps of controlled risk, you will find it gets easier and easier. You will find that any negative consequences are not nearly as bad as you had imagined. You will also find that you feel more alive, more excited, and more stimulated. You will also be more interesting to other people. This of course all builds on itself as a virtuous circle until you are doing what you want to do without fear.

Tip #3 Worst Case Scenario
Many people make choices based on an imaginary worst possible scenario rather than the likely probability of negative things happening. When I have a decision to make it often helps me to imagine the realistic worst possible scenario. As long as I can live with the worst case scenario (for example losing $2,000) and I can also see a significant upside opportunity I am happy to take a controlled risk.