A fair weather rider can still have fun

One of the things I love to do is get out on my motorbike on a sunny afternoon and enjoy the freedom of quiet country roads. It’s a purely selfish hobby and one that my family graciously allow me to enjoy. There are months when I leave my bike in the shed because, truth be told, I prefer to be a fair-weather rider. Honestly, I like to avoid the rough stuff because I prefer to manage my risks.

I know there will be hard-core riders out there who call me names and scoff at my low risk tolerance, but that’s okay. What I would really like to highlight today is that risk tolerance is a personal assessment that shouldn’t depend on the opinions of others.

When it comes to investing money

there are personal decisions we make regarding our tolerance of risk that are based on several factors. This decision we make is purely in the interests of safety and self-preservation. Let’s look at a couple of the factors at work here.

Safety. The reason I avoid high speeds on my motorcycle is the same reason I avoid unsafe investments. I like to keep myself within safety parameters. In my personal assessment of situations I purposely avoid those kinds of “deals” that are promoted as easy money if I don’t consider them safe. I’m happy to set this safety parameter based on my personal comfort, as it’s me who is sitting in the driver’s seat.

Safety is also contingent on another factor, skill. The truth is I don’t yet have the competence to manage a high-powered motorcycle at high speeds. I have friends who compete at national and international levels and I marvel at their gifted control of their mechanical steed, but I’m nowhere near as good as them.

When it comes to money there are skill factors that we can develop over time. When we assess opportunities we should factor in our skill as a part of the risk assessment. I’ve seen novice investors lose a bunch of money in circumstances beyond their ability. I’ve also seen highly competent investors take situations that look impossible and transform them into profit for them and others.

Risk versus reward is a trade-off I make that depends on my motivation for reward. Those who compete should do so to win the prize. If you’re in a race, you’re in it to win it therefore some risk is necessary. But if you’re not in a race then you can chose a lower level of risk.

This trade-off assumes you consider what you have to lose, as this is the risk you’re really assessing. On a motorcycle I risk losing life or limb if things go bad, which I’m pretty keen to avoid. With financial decisions I can also risk losing a lot, which makes it vital that I’m careful just what I put at risk. My family do not wish to live in a cardboard box, with or without me.

With my decisions made I’m happy – a fair-weather rider can still have fun.

(This article was originally published in Phil’s regular column in the Waikato Times newspaper.)