In life, most people do whatever they can to avoid risk. They believe that playing it safe will ultimately lead them to the life that they want. So long as they feel comfortable, they’re doing well.
But that’s not how it works in life. There’s actually no way to eliminate risk or ever achieve security. Everything is an illusion.
That sounds like a kind of strange thing to say, but think about it. Imagine you’re a billionaire investor, like Warren Buffett. Where does his wealth come from?
Well, you might say, he has money in the bank. But the bank could fail at any moment, wiping out his deposit. Or, worse still, they could confiscate his money if the government tells them to.
You could also point to his stock portfolio and say, he’s fine because he owns a lot of shares. But what are shares? Essentially, they’re just legal promises for investors to receive a portion of the firm’s profits in the future. In that sense, there’s nothing real about them. They aren’t actual wealth he can touch and feel. They provide money he believes that he can use in the future. But they don’t have to.
Okay, but what about the physical businesses he owns or his farmland? Well, again, all of that can fail. The companies might not turn a profit, and the government could take his land away from him. It’s unlikely, but the risk is there.
The point is that no matter how much you strive to live a risk-free life, you can never have one. It doesn’t matter how wealthy or popular you are, the universe will always find a way to upset you.
So what does this mean?
Accepting And Loving Risk
The fact that risk is inescapable means that we should both accept it, and try to love it.
That’s precisely what people in the business and investing world do. They recognise that their work would have no value if it wasn’t for risk. It’s precisely because it involves a downside that they’re contributing in a way that others are not.
Think about it this way: imagine if everyone could start a business that they knew would succeed. It sounds great. But when you think about it a little more, you realise that it would lose its value. If everyone could start a business, the value of doing so would go down. And, eventually, nobody would be any better off than anyone else. In fact, they might even be worse off.
And that’s the thing about taking risks: it proves that you’re willing to accept a level of discomfort in your life that others aren’t. You’re prepared to make the hard decisions and look at risk straight in the eye, instead of pretending it’s not there by taking a cushy job.
When you see risk in this way, you can transform the way you think about it. You can change it from something you fear to something you love.
How does this work, you might ask?
The idea is this: when you fear risk, you avoid it. But when you love risk, you recognise that it’s your ticket out of poverty and into a life of freedom.
Think about the people in your life and what they do with their savings. Most have a pension fund earning some pathetic rate of return, or they have a 1 percent savings account. They hope that they can retire in 20 to 40 years with enough money to live on. And maybe, eventually, some of them will get there.
But that takes a lot of time. And there’s no guarantee it’ll work. Most savings accounts actually lose money to inflation.
Thus, the price of being unwilling to take risks is that you never get the returns. Eventually, you wind up losing out of vast sums of money you could have earned if you’d done something a little riskier.
How To Take Risks You’ll Love
And that brings us onto an important question: how do you take risks you’ll love?
That’s actually a tough question to answer and it all comes down to your personal risk tolerance.
Imagine you put £100,000 into the stock market. In the first year, the value of your investment could fall to £50,000. At this point, you might tell yourself that it’s not working out and withdraw your money. But that would be premature. Stock prices move about all over the place in the short term. They could go anywhere, including up by 50 percent.
However, over the long-term – say a decade or more – practically any diversified portfolio will provide you with substantial returns. And what’s more, the longer you leave your capital invested, the bigger returns it’ll generate. Your £100,000 might turn into £200,000 or £300,000.
The reason it grows like this is because you’re willing to place bets that others are not. Yes – the value will fluctuate all the time. But the overall trend is upwards over the long-term. Companies in business will always make profits on the whole.
The Case For Starting A Business
Of course, this investing scenario is just an example. Many people decide to start businesses as well, something they describe on this site.
Starting a company is like taking a bet similar to putting money into the stock market. Except this time, you’re in control.
When you set up a business, you don’t have any cast iron guarantee it’ll succeed. It could quite easily lose money and fail. But you do have risk on your side. Because you’re placing a bet, your upside is much larger than the average person’s. And the bigger the risks, the larger the potential payoff.
Business websites discuss the winners of these bets all the time. Mark Zuckerberg, they say, is a “genius” because his ideas paid off. Sure, he’s a smart guy, but they’re a dime a dozen. What makes him different is that he won the lottery of business. He landed on the formula that people like in a market awash with social media alternatives.
Bottom Line
Ultimately, how much risk you’re prepared to put up with in business is a personal choice. The majority of people can’t hack it and so they carry on in their regular jobs.
But there are ways to make it work on a personal level.
One strategy is to save up the money you need first and then use your time to start something small and test the market. There are countless stories of successful people beginning their careers in regular PAYE jobs to save money to start something new.
The other way to do it is to have a side project. Sometimes you’ll find that an idea you have grows and grows to the point where you don’t actually need to work your regular job anymore.
You can also get to a stable place financially by investing in assets. It’ll take a while for them to start generating real cash for you. But when they do, you’re then free to go in whatever direction you want.
Taking risks never feels good – that’s why people don’t usually do it. But that’s what makes the process so valuable. When you’re prepared to step out of line and do things your way, the world opens up to you. You suddenly find yourself in situations you never imagined possible.
Making risk your friend, therefore, is something you can learn to do. It doesn’t mean being reckless. But it involves looking at both the downside and upside of setting up a company.