INVESTMENTS AND RISKS

To end the week we are going to break this topic into two, easy to digest, parts.
Today and tomorrow's topic will cover the risks involved with investing.

Risk is another key element with any investment. Why? Risk is
unavoidable. You are always going to have some type of risk in your life...
in general, and certainly when you are investing in property. There are two
things you should understand in order to manage risk:
1. Risk is unavoidable.
2. Risk must be managed.
I say “must be managed” because risk is unavoidable; there is risk in
everything you do.
Now that we’ve identified the two things that go with risk (it’s unavoidable
and must be managed), how do we manage risk? It comes down to
personality strengths and weaknesses.
Looking at your personality will tell you how to manage your risk. What
do I mean by personality? Let me give you this example... Think back to
when you were a kid at the public swimming pool and it was the first timeyou were going to jump off the high dive. As you were going up the ladder,
did you see a bunch of people jumping off the diving board and you yelled
out, “Hey, that looks fun.” Were you the type of person who got all excited
at the bottom and then went up and the higher you got, you became scared?
Then suddenly you were at the top and were clinging onto those little
handrails as you looked over the side. You started crying and you climbed
back down... or even worse, you were paralyzed and started crying and
your mom had to come get you.
Were you that kind of person? Or were you the kind of person who
watched other people jump off the high dive? Then you figured out how it
was done and you climbed up and jumped. Or you may have been the type
who screamed, “Yeah!” as you climbed the ladder, ran, and jumped off the
board, diving straight into the water as you screeched “Geronimo!” Bam,
you did it. It would not have mattered if there had been water in the pool
or not; it could have been solid concrete. You were jumping because
someone obviously put a diving board there for a reason. Are you that kind
of person, or are you the second type of person; the calculating guy who
watched carefully and then jumped in?
Personality strengths and weaknesses tell you a lot about your core
personality. As you think back on how you reacted to this situation as a
child, ask yourself if your behavior was rational or irrational. In my
example, being scared of the high dive was rational as a child; as an adult,
you know it is irrational. How many of you were scared to ride a bike for
the first time and never wanted to ride it again after falling? I have several
friends that it took years to learn how to ride a bike while everyone else,
including myself, was off and riding. We were in the dirt playing around
and riding all over the neighborhood while the other kids did not want to
do it because they were frightened. Is that rational or irrational?
That’s what you need to ask yourself: is the risk that I am taking rational
or irrational? Am I the type who is going to be paralyzed? Am I going to
talk myself out of investing? Am I going to find every excuse under the
sun not to act, to do nothing... including not investing in property? If this
investment is wrong, I’m sunk. (That’s rational! That’s obvious; it’s
quantifiable; just stay away from it.) But don’t use petty excuses to talk
yourself out of investing; just stop using excuses.
However, if you are the type of person to run and jump off the diving board
– you have a high degree of risk tolerance – you need to be very careful.
I’m that type of person; I’m the type of person who will do something
regardless of what is at the bottom. That’s a recognizable problem. To
counteract this, I have established checks and balances for myself to make
sure I’m okay and that I’m going to be safe, because my personality
strength is that I’m okay with risk and weakness.

We will continue with this topic tomorrow.