Risk makes us feel alive!
Many humans love risk. It often makes us “feel” alive. Take the puffer fish: Puffer fish are the second–most poisonous vertebrate in the world. The puffer’s skin and certain internal organs are highly toxic to humans, but nevertheless the meat of some species is considered a delicacy in both Japan (as fugu) and Korea (as bok). Chefs are trained to know what’s safe and what’s not safe to eat.
Eating poisonous fish, jumping off cliffs, sky-diving, and various extreme sports show the human desire to push the envelope. This can be exciting and rewarding. When it comes to your finances, taking risk can also be rewarding. However, when you take risks without understanding them, you often don’t get your desired results. During downturns in the market, like we are presently seeing, we get to see the negative side of investing in stocks. Having a calculated plan of action – a buying discipline as well as selling discipline is essential.
Too often I see people handle over money to a financial advisor or a mutual fund believing their advisor or manager will protect them from losses. Far too much confidence is placed in this area because of three main reasons:
- Many investors miscalculate their risk comfort level – they want all the upside of the market with little to no downside. In other words they have unrealistic expectations.
- Many investors misunderstand what they are investing in. With all of the various risks such as business , market, inflation, currency, and political risks, to name a few, many investors fail to recognize their nest egg is susceptible to more risk than they bargained for.
- Many investors let emotions dictate how they invest. Becoming too fearful or too greedy are recipes for investment disasters.
Bottom line, the markets are dangerous right now and I am not very confident in the short-term direction of the markets. The risk level is too high given all of the factors on the table. Right now I’d be extra cautious – I’d rather be safe than sorry. Taking risk is a part of life but knowing when to risk and when not to risk is the difference between making and losing money in the markets. Just like the puffer fish, I just talked about, instead of knowing what’s safe to eat, you need to know what’s safe to invest in. You have to be extra careful what you buy right now. Do you know which investments are most dangerous right now? Not knowing this could be toxic to wealth!
Check out www.faithbasedinvestor.com, we tell you what to buy, what to sell, and tell you exactly when to trade. It’s only $99 a year!