Thursday, August 10, 2017

Risk Part 1

Risk is a part of our everyday life and as such we cannot talk about Personal finance and not discuss our risk appetite because so many financial decisions are hinged on our risk level.
 Virtually all areas of Personal Finance have risk elements in it, from Investment decisions to Savings decisions to Spending decisions to borrowing decisions, to changing your job, etc. and therefore we must consider it.


What is Risk?
Risk implies future uncertainty about deviation from expected earnings or expected outcome. Risk measures the uncertainty that an investor is willing to take to realize a gain from an investment.
Even though the above definition is investment related, the fact is we are all taking risk on a daily basis. In the light of this, we need to understand two basic concepts: Estimating financial risk-taking capacity and Understanding the risk tolerance level of an individual.
Different people have different risk attitudes. Some are risk lovers, some risk averse and some are neutral towards risk. Under risk assessment, people can be categorized into:
The Risk Avoiders/ Risk Averse: Just as the name implies, this category of people tries as much as possible to avoid anything they perceive as risky. Just as the principle of investment is; the higher the risk, the higher the return, risk avoiders always prefers low risk and low return on investment.
The moderate/neutral Risk takers: This set of people cannot really be categorized as being Averse or Lovers they are lukewarm when it comes to risk taking, they are mostly indifferent about taking risk. most of the risk taken by the neutral risk takers are based on emotions and condition.
The Risk lovers: A risk lover is a person who is willing to take more risks while investing, in order to earn higher returns, they are ready to take a loan, ignore most uncertainties and do risky ventures.
The truth is whatever category you belong to is as a result of your experiences and exposures, which encompasses education (Both formal and informal), past life experiences, association (friends and colleagues) etc., but the beauty of Risk is the fact that risk can be managed (Risk Management).
……To be continued


I remain your friend and Personal Finance Coach Babatunde Ayorinde, follow me on twitter @pistis03,
And if you like to engage us to speak in your program or for adverts send us an email at babat09@gmail.com.


Thanks for reading, invite you Family, Friends, and Foes to read the blog, as we move ahead to our financial freedom.

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