Why It’s Time to Redefine Risk by Kim Kiyosaki

Why It’s Time to Redefine Risk

If you identify as a ‘conservative investor’ then perhaps it's time to assess your level of financial intelligence

It’s a question insurance agents will ask if you are teetering on the edge of being under-insured, gamblers will ask themselves as they put a wad of cash on the blackjack table, and first-time skydivers grapple with:

What level of risk are you comfortable with?

When it comes to working with financial planners or stockbrokers, they’ll always want to know if you’re conservative or aggressive when discussing your investments. Sadly, they don’t even realize that’s the wrong question to ask.

A bright businesswoman I know once told me that the reason she doesn’t invest in the same opportunities I do is because she’s conservative. In reality, I’d argue that she’s not conservative — she’s uneducated.

Which brings me to the question the financial planners should be asking: Are you educated or uneducated when it comes to your investments?

Saying you are “conservative” is just an excuse that could easily be translated to, “I’m uneducated, scared, don’t know what to do, and don’t want to take the time to learn.”

You see, the conventional wisdom of most financial planners is, “The higher the return, the higher the risk.” But that’s not really true. I’ll tell you what is true: The lower your financial intelligence, the higher your risk; and the higher your financial intelligence, the lower the risk.

The Truth About Risk

So many people mistakenly think that investing is risky, when in reality it’s the investor who is risky. Think about it: An investment is just an investment, whether it’s a business, a property, a stock share, or a commodity. It’s you, the investor, who determines if a specific investment is a good or bad investment for you.

Not every investment you choose will be a good investment, as no investor has a 100% track record of picking winners. Yet, the more knowledge you have, the better odds you have.

Here’s another way to examine this theory: Is a car going 25 miles per hour driven by an experienced driver risky? Probably not. Take the same car and the same speed driven by a drunk driver and that same car becomes a weapon. It’s not the car; it’s the driver. It’s not the investment; it’s the investor.

As you might imagine, I don’t like taking risks with my money. And neither does Robert. Nor do our close investor friends. We study, we research, we build up our experience. Have I taken risks? Yes, I’ve invested in stocks I knew virtually nothing about. I’ve stupidly turned my money over to a money manager and blindly followed his recommendations. Heck, I’ve even invested in a hedge-fund deal that I suspected was too good to be true. And guess what? It was.

Redefining What Risk Means

Warren Buffett says of risk, “Risk is not knowing what you are doing.” Again, the key word is you, not the investment.

Over the years, I’ve come to define RISK as Reckless Investing Sans Knowledge. Now, in the world of investing, there are no investments that are 100% guaranteed to be safe (free from losses), but there are things you can do to reduce the risk and increase the safety:

  • Give yourself a financial education
  • Gain hands-on experience by actively investing your money
  • Understand the investment and the return on the investment
  • Have control over your investments
  • Become your own financial adviser

Part of your financial education should include reading my book, It’s Rising Time. In chapter 16, you’ll learn more about the investor’s primary focus: ROI (return on investment). It’s how you calculate how much money you will make on an investment, and a crucial piece of information when evaluating investment opportunities.

If investing sounds like something you’d like to explore, then do everything in your power to educate yourself about every deal you consider — it’s the only surefire way to reduce your risk and increase your odds for success.

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