Everyone has a different definition of what it means to be wealthy. Some view it as amassing as much money as possible or leaving a legacy to heirs. Others might view wealth as simply being financially secure. Whatever your personal definition, you should consider how risk impacts your meaning of wealth. The three components of risk that should always be evaluated in making financial decisions are the ability, willingness and need to take risk.
Unless someone inherits a lot of money, the most common way to build significant wealth is by taking a lot of risk (i.e. starting a business). Being a risk taker who has experienced success can give someone confidence in their ability to take risk. That confidence often creates the willingness to take risk.
That said, the great irony is those with the most ability and willingness to take risk often have the least need to take it. The strategy to get rich is entirely different than the strategy to stay rich. To get rich, you take risks. To stay rich, you should minimize risk.
Consider the following story:
In 1999, a retired couple had an investment portfolio worth $13 million. Unfortunately, they had substantial exposure to US technology stocks and by 2003 the risk of not having a truly diversified portfolio
surfaced and their portfolio value was worth $3 million.
The couple was asked if they would have made a significant lifestyle change if their portfolio doubled to $26 million. The couple acknowledged it would not and the experience of watching $13 million shrink to $3 million was very painful and the cause of many sleepless nights. Not to mention the lifestyle change they had to make since they took on more risk than they needed.
Once you have enough money to maintain a comfortable lifestyle, the good things in life, the really important things are either free or inexpensive. For example, taking a walk with your spouse or spending time with your children or grandchildren.
When mapping out your personal financial plan, be sure to distinguish between needs and desires and carefully consider if those desires are worth the risk you will have to accept.
