Have you ever sat down and considered how you view taking risks? It’s an interesting thing to understand as it could be helping or hindering your life, including your financial position, if you are at either end of the spectrum.
Risk versus reward
“The policy of being too cautious is the biggest risk of all” Jawaharlal Nehru
There are plenty of wise tales around the concept of risk versus reward and when it comes to financial planning most can be applied.
The practicality of the situation is that there really is a balancing act weighing up what you put in and what you get out. This isn’t to say that without taking high risks that you won’t be successful financially. It is entirely possible. What it does say though is that expectations need to be managed and factors taken into account, such as desired timeframe for a return on investment (ROI), level of investment expected and so on.
Balancing the scales
“In the 20 years I have been helping doctors and dentists build their financial wealth, I have come across those who are clear risk takers and can happily rest their head on their pillow at night regardless of any major financial decisions they make. Equally true, are those I have met who don’t make any progress financially for fear of losing £5. It’s a balancing act.” Darren Scott Guinness
If you air on the side of caution then realistically results will mirror and returns are likely to be “cautious” as well. Putting all your eggs in one basket though could cause stressful conditions if the reward is not as anticipated.
At Dental & Medical Financial Services we take extra care to balance the Risk versus Reward scale ensuring you feel comfortable with your decisions and have a realistic expectation of what you could gain, or lose.
How to best assess your attitude to risk
The best way to assess your “risk tolerance” is to work with a professional financial advisor who knows the market. They can ask poignant questions to get to the bottom of the situation. They can also explain in practical terms the probability of success versus failure and provide case studies of others who have walked the very same path before you.
A sample question could be:
Thinking of the word “risk”, which first word is your primary thought?
- Loss
- Uncertainty
- Opportunity
- Excitement
Download the Dental & Medical Risk Assessment Questionnaire to get started.
Risk tolerance is usually circumstantial
Usually attitude to risk is circumstantial based on what you have to lose, so consider the following:
- How quickly is a ROI required?
- Do you need to be able to gain access to the original funds? This can be assessed in the short, medium or long-term.
- What is your capacity for loss – i.e. do you have a reserve or a back up plan?
- Are there opportunities to be tax efficient?
Building your wealth through robust methods in a way that fits with your attitude to risk is essential for financial planning.