I hosted a dinner party a few months ago and it was an unmitigated disaster. A friend of mine brought her two children, ages 2 and 4 who promptly knocked over a glass of red wine on my white carpet and unloaded a full sippy cup of milk on the hardwood floor.
I knew it was a risk inviting this family and their somewhat undisciplined (in my opinion) children to my home, but I thought the fun of the evening would outweigh the trouble of keeping an extra eye out for the disastrous duo. I had hope and faith that past behavior would not necessarily lead to bad results.
Let me just say, there were tears…lots of them…and not just from the children. I learned a valuable lesson about what I feel I can tolerate, and what is simply unacceptable to me.
Risk and reward is a concept that applies to dinner parties as much as it applies to selecting the right financial product to invest your money. What am I willing to risk in order to achieve a potential reward? How much risk is too much that even if the potential for reward is great, the potential downside is more than I can tolerate?
Finding your own tipping point of risk and reward in investing, just as in life, is both knowing yourself and experimenting with your own limits. Get advice from experts and others, and listen to your own intuition, use common sense and let the past performance of any financial vehicle or Financial Advisor play a role in how you determine what option is right for you.
How do you balance the risks and rewards in your life?