If you truly develop your mind as an investor, you’ll eventually see risk as an inevitable part of a successful portfolio. Avoiding loss is certainly our goal, but in achieving success as a passive investor, accepting risk enables us to act with surety. Millions of people who search for passive income tend to overthink it. Some are “paralyzed” by the prospect of loss instead of using it to their advantage.
In every deal we enter, there’s a way to turn uncertainty into a benefit. Interestingly, a portfolio that consistently profits is also consistently exposed to risk. The balance we achieve as lifestyle investors comes from first analyzing our costs. As you profit, I encourage you to be bold but to know the cost of doing so.
Being Risky Without Accepting Loss
We have to accept risk for what it is because we can’t eliminate it. Profits must outweigh deficits if a portfolio is to succeed. Notice, however, that risk remains even within a winning record. No one generates profits without first paying a principal sum. This means that even if you did find a risk-free investment, the money you put into it is your first loss. My message to passive investors is to balance their risk by knowing the part it plays.
Risk doesn’t tell us not to enter a position. It tells us how to, when and where.
Risk—Accepting It vs. Taking It
You might have heard it before: “Take risks.” My expectations for your financial future is much more secure than that. Don’t take risks that you can’t handle. Never go into an investment without knowing the dangers involved with it. The difference between taking risks and accepting them are the pursuits behind each. If you “take” risks, you might also find yourself habitually searching to do so.
When you “accept” risk, however, you decide on the lowest denominator in order to keep losses at bay. Here are some examples that explain my point:
The loss, duration or long-term repercussions won’t matter. Being motivated to “take risks” means that as such arise, you take it. You won’t worry about doing analysis or asking yourself if you can handle it. Any method that takes on risk in its full capacity will lose money over time. Some investors find the opposing stance, as their response, to be that of eliminating risk. Notwithstanding, your balance is struck by accepting the reality that your risk doesn’t go away.
The first step in solving any problem is to know that it exists. Accepting the truth that risk is always there helps you to strategize from a point of logic. You have to clearly know “what you’re getting into.” Only then can you devise a plan that outperforms the damages of loss. Accepting risk allows us to think intuitively.
We each need to create strategies that allow risk to exist but at a lesser degree than our profits. Your investment with me, for example, covers maintenance, advertising and repairs. The rewards we later receive outweigh but won’t negate the initial risks we had. Eliminating risk is not the objective; outperforming it is.
How Much Risk can You Tolerate?
Before taking your first step into an investment, you must decide on how much loss you can handle. We know risk will be there. How much of it will you be exposed to? Wealth building in real estate is ideal because of the passive way it generates money. Passive investments enable you to decide on the risk you’re comfortable with. Risk tolerance is the level of loss that you can handle in any situation. Now for ideal success, tolerance must be a number.
How much can you lose before the loss makes you think twice? Will you have to remortgage the house just to stay in an investment? Will your employer condemn you; will your spouse consider separation? The extremes that come from financial loss are the risks you’re faced with. Deciding on how much loss you can handle requires you to analyze your emotional stability also. You can then enter an investment once the amount that you can lose is determined.
Know the Cost Up Front. That Cost Equals Your Wager.
When done right, evaluating the risks you have should result in an exact figure. I don’t recommend general figures because we need to cap your losses. Putting a cap on your deficits means that only a specific sum is at stake. I’m always positive about your investment potential, but your profits should never lead you to forget the costs involved. Accepting risk is how we humble ourselves and prepare to succeed. You can also scale your rate of success by determining:
– How Fast to Enter—Costs that are clear prior to investing can become an indicator regarding how you should invest. Investments that, after basic analysis, show a low cost of entry but a high-profit potential require fast action. The mistake of not knowing your risk leads you into toxic deficits. Acting with haste is only profitable when you’ve confirmed your likely margins of profit. I then suggest that you double check to confirm that the cost is low during any ideal moment for investing.
– How Quick to Let Go—Cost, which can be measured as risk, also tells us how or when to exit an investment. The closer we are to hitting our profit targets, the longer we want to hold such underlying assets. Moving closer to our initial levels of risk is what signals a need for exiting an investment. It’s even possible to profit from an asset and then see it revert toward a measure of loss. As long as you’re aware of the risks, you can exit a bad deal before it gets out of hand.
Reward and Risk Analysis—Why?
Being that risk is “acceptable,” we need to ask ourselves if our investments are worth it. In doing so, we’re not only asking if the potential profits are alluring enough. Successful investors need to ask if the potential loss is worth the trouble. The way that smart investors enter a position starts with cost/reward analysis. In such study, the first ratio we need to confirm is a 1-1 outcome.
This means that for whatever you spend, you get the same amount back. This is how we insure our principal. Ratios that then hit 1-3 are those that triple our initial investments. An investment that fails to produce a 1-1 outcome isn’t worth it. The first rule to any successful investment is to return your principal in all cases.
Automation—How a Good Track Record Solves Your Worries
Building your confidence in accepting risk helps me to ensure your success. This is why I want you to know that the best deals are those that have first proven themselves. No one can guarantee what the financial markets will do. What we can do together is decide on the worthiness of an asset by looking at its history. Past performance is the closest thing we have to a “best bet” when investing.
Profit automation occurs when an investment asset consistently shows profits as outperforming the deficits. A proven history of success ensures that we don’t blindly take risk into our lives.
*Freedom and the Dangers Involved—Financially, it’s easy to get carried away when you forget about your potential risks. A lifestyle built on wealth gives us a certain freedom that we might take for granted. The danger of living on passive income is the delusion that that money is generated without cost. This is what the sensation of winning can lead us into. By looking for investments that are backed by historic performances, we won’t negate risk, but we’ll manage it logically.
Letting Passive Income Reduce the Uncertainty
An ideal way of creating generational wealth is to reduce risk via passive investments. The less work you have to do, the more analysis your mind is free to initiate. It’s easier to make decisions that are good for your portfolio when you’re not overwhelmed by huge losses. Reducing risk can be successfully done by reducing how much work you need to put forth. My work, as a result, can substantially reduce your uncertainty.
Take a Larger Step Into Passive Investing
Wealth building is complicated if risk overburdens your thoughts. Real estate is being bought every day however. Reducing risk calls for investments that perform even when world economies don’t. Passive investing is an approach that has mastered the art of boosting profits while confidently accepting the risks involved. I need you to be bold in this manner. Follow your passion but with a realistic perspective of the cost.
Generational wealth is easier to create than you might think. You need a logical approach to managing risk while being prompt to take profits as they come. We can make your passive lifestyle better than you had imagined. All of us will inherit potential lost but not being deterred is what guides us into our greatest potentials in wealth.
Disclaimer: The views and opinions expressed in this blog post are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action.