Risk Management Made Simple

Risk Management is about limiting your downside.

Risk and Reward go hand in hand.

Generally speaking: the higher the risk, the higher the reward.

But this also means the higher the chance you could lose everything.

We want high rewards but we also don’t want to lose everything chasing those rewards. So what do we do here?

We consider the downside by asking ourselves uncomfortable questions.

“What if I’m wrong?”

Here are some more questions we could ask ourselves:

  • What happens if I’m wrong?
  • What if it goes sideways?
  • What if it goes down?
  • What if it goes waaaay down?

These are all great questions to ask to size up your investments.

I go over some scenarios in the video for how asking yourself these questions can prevent you from catastrophic losses — which is, of course, one of our highest priorities (if not THE highest priority).

In other words, we want to stick to Warren Buffet’s advice as closely as possible.

Rule No. 1: Never lose money

Rule No. 2: Never forget Rule No. 1

— Warren Buffet

This is cool but... what’s the point?

By being skeptical, you will realize there are no simple answers to simple questions when it comes to something as volatile as wealth building.

Having this kind of skepticism will help you confront (and consider) uncertainty. The purpose is to avoid having a false sense of certainty.

By considering both sides, you can strike a balance between the amount of certainty and uncertainty you can be happy with, and make a well-informed decision about how much risk you are willing to take on.

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