Being comfortable with risk

Being comfortable with risk


Risk really does mean different things to different people.


If I ask a farmer or grazier whether they are risk-takers, they will generally reply with an emphatic "Ben, the truth is we are really conservative. We don't like buying shares or investing in super because we don't like risk".

My experience tells me that most rural producers are not as conservative as they think they are. In fact, they are generally the exact opposite.

If you asked the average city dweller what they thought of anyone who would plant hundreds of thousands of dollars of seed in the ground 'hoping' it would rain they would probably say "you've got to be kidding". Or how about, whether they would borrow millions of dollars to buy a farm that more often than not is in drought or flood, they would most likely say "you'd have to be stark raving mad".

Nevertheless, farmers do this much more every year and do it without batting an eyelid.

I thought about it for years until one day I asked one of my grazing clients and they said, "we are not risk takers Ben... unless we know exactly what we are doing, then we are super aggressive".

I thought that after 20 years as a financial adviser, this was a great explanation of our relationship with risk. Understanding the risk, leads to being comfortable with it and as human beings we have the unique talent of being able to get comfortable with risk.

As kids we were all afraid of the dark but when Mum or Dad turned on the lights, we understood what was or wasn't there and we were usually OK.

I am sure you all remember how scary it was at first to borrow and buy your first farm? I bet you all said quietly to yourself something like "we are never going to pay this off" or "what the hell happens if we can't make the loan repayments". There were probably a lot of sleepless nights but very quickly you became comfortable with the loan (risk).

Getting comfortable with risk is good, as it allows us to make smart investment decisions like buying your first farm, expanding the farming operation, upgrading machinery or even building your off-farm assets via purchasing an investment property, starting a share portfolio or even contributing money to super.

However, this 'comfort' with risk can also come with a dark side when you slide into the risk comfort zone. When this happens you start to take ontoo much risk and this can be catastrophic.

  • My super/investments are going well let's take some more risk and try and squeeze a little bit more return... Risk!
  • I don't know how my super is invested but hey, it's going OK so I'll leave it alone... Risk!
  • I've never had life insurance and wow, I've never needed it... Risk!
  • Interest rates are at historic lows and I can't see them ever going up again, let's not worry about paying off some debt... Risk!
  • Cattle prices are at an all time high, we can start to pay off debt or buy off-farm assets in a couple of years... Risk!

So remember that not all risks are as risky or as risk-free as they sometimes might seem.

  • Ben is an authorised representative of Charter Financial Planning. This article offers general advice only.

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