Avoiding Too Much Risk Can Be Dangerous

Although it may seem that you can’t go wrong if you don’t take a risk, this is not always true. Sometimes, you can end up actually losing by being too safe.

The concept of risk refers to the potential loss incurred by any move that you take. Therefore, if you never take a risk, in theory you will never lose anything. The downside of this way of thinking is that you will never gain anything either. For example, when you come to a busy road, if you don’t cross it then there’s no chance that you’ll be run down by a speeding car. But you also won’t reach that pot of gold that’s waiting just for you on the other side.

To gain the most from whatever decision you make, strike the balance between what you may end up losing and what you may gain. Measure your risk tolerance – how much you can afford to lose – as well as the potential gain that you could earn from making a specific move. Don’t forget:

Pearls don’t lie on the seashore. If you want one, you must dive for it.

-Chinese proverb

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Rich As A King

Douglas Goldstein, CFP, is an investment advisor and author of Rich As A King: How the Wisdom of Chess Can ...

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