Risk vs. Risky

By: Mark Frentz
www.akerahomes.com
mfrentz@akerahomes.com

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But isn't Investing Risky?

I love the pictures I chose for this week's post. Are the mountain goats doing something risky? What's your opinion? It certainly looks risky, doesn't it? Would it be risky for you to make the jump either goat is making?

I met with a friend for lunch this past week and we discussed what risky means. It's something I find many people struggle with, especially when it comes to investing. So we will define both terms; risk and risky and my earnest hope is that you come away from today's post with an understanding that will serve you better in the investing world.

Risk

There is risk in absolutely every action we take every day of our lives. A worst case scenario that would be catastrophic for ourselves and our families. For example, did you drive to work today? The risk involved in driving on a street with other vehicles is I could die or I could kill someone else. It is the same risk that exists each and every time I drive. With driving there are other, less substantial risks as well. My car could blow a tire and I could be late for work. Something could go wrong with my engine and I could get stuck on a main street and have to pay both for a tow truck as well as for an alternate way to get to work.

What about the risks of a relationship? There are massive emotional and psychological risks involved in relationships (as most of us know too well even before leaving our family of origin) including feeling abandoned, physical or emotional abuse, even financial ruin.

Lastly, what is the risk of investing no matter what type of investing you do? You could lose money. Period. That's the risk of investing.

My point is that risk is involved no matter what you do and that the risk remains no matter how you attempt to change how you drive, who you spend time with, or what you invest in. The risk is always there.

Risky

While risk is a term that I'm using to describe the potential difficulty or struggle or discomfort that always exists, risky is a term that refers to how much control we have over risk. Whether or not something is risky depends on 3 things: our experience, our skill, and our knowledge. Let's refer to the three scenarios above for examples.

Driving: I have driven for over 20 years now in multiple countries and invest in AMA insurance just in case I do have car trouble (my experience). I have learned to check my mirrors and be aware of both the driving conditions of any day as well as potential erratic behavior of drivers around me (skill). I have also taken driver's courses to learn how to drive safer and know that driving a certain distance behind others at certain speed affects the potential of getting into an accident (knowledge). In these ways I mitigate the risk of dying or killing someone else on the road. Do these ways take away the risk? Absolutely not. They simply mitigate the risk; decrease the chances of realizing these risks.

Relationships: I have experienced both healthy and unhealthy relationships with others. I have listening to others and relating to others in healthy ways including assertiveness and using boundaries which help both parties. I have worked with various groups of people in the three countries I've lived in and have studied 5 languages now. All of these activities have contributed to my skill in relating to others. And I have learned in many ways how to relate to others well through a master's degree in counselling psychology. Does this mean I can't hurt others or be hurt by others? Definitely not, but it does change the possibility of my getting into a relationship without knowing that there are some red flags screaming danger.

Investing: I invested in my first property when I was 20 years old and have invested in multiple properties since that time. I have learned, often through my experiences, how to manage tenants, set up accounts to take care of surprise maintenance costs, and negotiate with sellers in order to get great deals. And I have spent more money learning about investing than I have spent on both my bachelor and master's degrees. Does this mean I can't make a mistake or lose money? Again, no. It does mean my chances for making money rather than losing are constantly getting better. In fact, I have a mentor in real estate who has never lost a dollar on any investment he has made and he has purchased almost 200 properties in his investing career! You don't have to lose money to learn to invest well.

For me, driving, relationships, and investing in real estate all contain risk. They aren't very risky however because of my own experience, skills, and knowledge. The difference isn't in the car, the person, or the property, the difference is with me.

Final Thought

Look again at the pictures above. I'll ask again: are the mountain goats doing something risky? My guess is that the mountain goats, even the kid, have been making leaps from rock to rock multiple times a day for months or years already. These mountain goats have the same risks as I would making the same leaps. The difference is that the goats are experienced mountain climbers and jumpers with a different skills set than myself. My guess is that these leaps aren't very risky for the mountain goats and I know they are much more risky for me. Again, the difference isn't in the distance of the rocks or the height but rather the individual taking the action.

I encourage you to grow in experience, skill, and knowledge when you make any investment. If you lack in these areas, work with someone who is strong in these areas to start with. My suggestion is that if you have little to no control over your investment you are doing something very risky because you are depending on situations and people outside yourself to invest unless you know and can trust that person and they are accountable for their actions. Did you know that a mutual fund manager makes you pay the same percentage of money regardless of how the portfolio preforms? That's risky to me (also because I don't know each and every stock in the portfolio intimately). Grow in the areas we've covered this week so that you can become an investor who consistently mitigates your risk.

If you have questions please feel free to connect with me, even if it isn't about real estate specifically, through the link below. It will take you right to one of my websites.



Here's to your future of risk-averse investing!

If you would like to learn more about investing in real estate please contact me at the email address listed at the beginning of this article or go to my website at: www.akerahomes.com/investing-in-real-estate.html