About Risk

Have you taken a risk that paid off a little or a lot? Did you take a risk that resulted in a loss? Haven’t we all experienced the inevitable negative surprises that life randomly throws at us due to no fault of our own?

Mid-career, after completing my M.B.A., I received unexpected news that my employer of 13+ years (a national bank) decided to downsize, and my team would be disbanded. I had two weeks to close the office. It was jarring, destabilizing news, to say the least. I had two children under the age of four and a new house and mortgage; my family relied on my income. 

I’m revealing my nerd-factor by sharing that one of my first activities, aside from preparing to terminate operations in my market, was to assemble my financial statement and budget. Despite feeling overwhelmed and feeling lost, it was reassuring to review the numbers, which told me we had some flexibility and time to figure things out.  

The numbers and analysis helped me recalibrate and transition my natural negative emotions toward charting a productive, strategic course. This process helped me assess my options strategically and thoughtfully. In not much time, I secured a great position in a de novo bank (a bank that has not been acquired through purchase and is newly chartered by the Federal Deposit Insurance Corporation (FDIC)), which led to one of the most exhilarating, fast-paced and financially rewarding experiences of my career. Lemons became something even more memorable than lemonade.

Many of my clients initially arrive with a bag full of considerations, questions, concerns, and aspirations. Some decision points are exciting and hopeful, while others are prompted by setbacks. Rarely are emotions not involved.

It’s an inspiring exercise to help clients do what I did for myself during a tumultuous time. Collecting data and creating a framework makes it much easier to analyze available options and take steps forward through the transition and toward a goal and new horizon. This process helps defuse fear. Often, options surface which might not have been contemplated before. As progress is made, new enthusiasm and momentum grow.

In this light, I’m excited to roll out a Risk Analysis Tool for my clients (who can reach out to me to get started) that will help us both articulate and understand how risk tolerance and investment risk align in the development and execution of a financial plan. For readers who are not yet clients, feel free to try out the Risk Analysis Tool by clicking here for a preliminary financial risk analysis. 

As a practitioner with decades of experience, I’m trained to assess a client’s risk tolerance and assemble a plan that marries an individual’s risk appetite with investments that help achieve short-, intermediate-, and long-term goals. I’m excited about a tool which provides an objective number to help my clients move from an amorphous (and often frightening) idea of risk into something more defined which can be contrasted with other options and scenarios.

Existentially, life itself is a series of big and small risks that are often overlooked. We all assume risk naturally every day simply by waking up, getting out of bed, going to work, and being in relationships with people we love. Admittedly, it’s not necessary to quantify all these risks.

Where I hope clients find the most value in working with me is to procure help in identifying and mitigating important risks (and sometimes essential) to quantify. Fortunately, there are easy steps we can employ to assess and navigate calculated risks.  

Although outcomes are never guaranteed, you can analyze and actively make moves to optimize your chance for success, following simple steps such as:

1. Defining your goal: Define what you want to achieve; having a clear goal will help you evaluate the risk’s potential benefits and drawbacks (downside).
2. Gathering information: Gather as much information as possible about the risks involved and the factors that may help offset or mitigate them. Analyzing potential outcomes, probabilities, and potential consequences sets the stage for making a fully informed decision.
3. Assessing your resources: Resources that support navigating risks often include financial resources, knowledge/expertise, experience/skills, and support networks. For example, my most entrepreneurial clients understand that a higher expense base for any business (or family) can make it more challenging if income is ever disrupted. Therefore, they keep overhead low to be remain nimble in adverse times.
4. Evaluating the pros and cons: Make a list of the potential benefits and drawbacks of taking the risk. Consider the best-case and worst-case scenarios and how they align with your goals. This will help you evaluate the potential rewards against the potential costs.
5. Considering your time horizon: Considering how much time you might have to recover from a loss (or time to work toward your goals) is a significant factor in creating a thoughtful plan. Rarely does it make sense to assume major risks late in life when there is little time to adapt, recover, and replenish your resources.
6. Developing a contingency plan: A backup plan can reduce the fear of taking risks.
7. Starting small: Often, taking smaller risks with a lower impact boosts confidence and creates momentum toward taking bigger, well-considered risks.
8. Taking action: Once you have gathered information, evaluated the pros and cons, and developed a contingency plan, it’s time to take action. Paralysis will thwart the best-laid plans, so it’s important to move forward and schedule time to re-assess/recalibrate along the way.

Choosing to surround yourself with people with expertise, experience, and insights into your situation (resources, hopes, and ambitions) is always a great idea. We know there is no guarantee of success for any endeavor. We can strive to optimize learning experiences and personal growth while minimizing irreversible losses. Walking alongside my clients and serving as a resource to help frame risk considerations with metrics is incredibly rewarding work and most fun when clients succeed.