Broker Check

Sounds Risky

April 07, 2015

My son reminded me the other day of a quote that I used to throw at the kids all the time when they were growing up. (No, it was not the quote from the Jedi Master Yoda: "Do, or do not. There is no try." although this is a classic)

The quote he mentioned was something that I saw in some long-forgotten newspaper ad decades ago. I cut it out and put scotch tape over it, and it has been sitting on my desk ever since. The quote is this:

"The greatest risk is not taking one."

I've been pondering risk-taking a lot lately, but not because of thoughts of sky-diving or the efficacy of ingesting six-month old salad dressing. I think about the quote because of its implication that our lives are filled with risks both seen and unseen, and often we don't realize that not taking a risk is also a risk.

We face known risks all the time. We decide to drive to the store, or take up running, or ask someone for a date, or ingest potato chips. These things all have upsides and downsides: obviously, I might get into a car accident on the way to the store (bad), but driving is a really efficient way to get to the store and bring groceries home (good). Am I willing to risk the accident for some food? Lots of factors go into the decision: weather, time of day, my health, my hunger, the route, alternatives to stores, the neighborhood, my car insurance rates, etc. Despite all of these potential hazards, I'm fairly confident anybody reading this has the ability to assess the risk of driving to the store.

However, other risks we face are not as easy to break down: quitting a job, deciding to marry, buying a car, picking a college major, deciding to move, choosing a medical treatment. These are all major decisions, and there are no obvious right or wrong choices. Often, we don't even know how to evaluate which hazards and rewards associated with these choices are important and which are not.

"The greatest risk is not taking one."

This doesn't mean that you should always opt for the "scariest" or most dangerous paths when you make your life decisions. I think that it's more about acceptance of the unknown obstacles and setbacks we will undoubtedly encounter no matter which path we take. We get stuck in our risk/reward decision process at the beginning because we feel we don't have all the answers. Standing still starts to look like a good idea. But as the poet Geddy Lee once sang "If you choose not to decide, you still have made a choice." Doing nothing often has risks, too.

The problem we run into is that we humans are really bad at assessing long-term trade-offs between risk and reward. We are well-evolved to know to run away from the lions chasing us today, but very bad at making choices that have long-term consequences. Like saving money, or those potato chips...

Clients want to discuss the big things like career choices, retirement dates, education thoughts for their kids and, of course, investments. One of my strategies to help people deal with all of these life-affecting issues is to get them to expand their viewpoints beyond the here and now. A career choice is easier to make when I ask the question "do you want to be doing this 10 years from now?". A home choice is not about today's mortgage rates or payments, but about neighborhoods, schools, and family size. The time to think about college education for your child is when she is young, because it is then you know to set priorities about school, behavior, and savings.

Risk is not just about today. It's about the 80-90 years you have to live your life. Avoid a decision today and you may find yourself 10 years older in the blink of an eye with the same gnawing feeling that you should change…something.

Think about it. What choice are you avoiding? What risk are you not taking?