Monday, 15 March 2010

What You Need to Know

Dollars & Sense

Rich-o-Meter

The Hazards: Evaluating Risk

"He who watches the wind will not sow and he who looks at the clouds will not reap.  Just as you do not know the path of the wind and how bones are formed in the womb of the pregnant woman, so you do not know the activity of God who makes all things." Ecc. 11:4-5

 

Many times, fear of the unknown will keep people from venturing down the path of investing.  We must remember from whom fear comes and choose to focus on trusting the Lord, as we attempt to be diligent stewards of His resources.  As the passage above suggests, He is in charge of the sun & the wind.  He is in charge of the harvest and the hailstorms.  Like the farmer we must be diligent to prudently plant our crops into fertile soil and trust Him to grant the growth.  That said, we must be careful to avoid compounding the risk to a level with which we are not comfortable.

 

Risk cannot be eliminated in any particular investment.

  • Sometimes companies go out of business, but most larger established companies just keep turning out a profit over an extended period of time.
  • Sometimes people do not pay their mortgages or file bankruptcy, but most pay their bills on time.
  • Disastrous hurricanes do hit populated regions, but usually weather and conditions help to produce quality crops.

"For God has not given us a spirit of fear, but of power and love and of a sound mind."                                                                                                                     II Tim. 1:7

We must not operate from fear, but from wisdom and understanding.

Remember there is always a direct correlation between risk and reward.  Risk can only be evaluated and somewhat mitigated through the implementation of wise, proven strategies.  If you expect high returns, then you must be willing to take the risk of the valleys that come along this path.  If you cannot handle the peaks and the valleys associated with many equity investments, then you must be content with the lower returns associated with the stability you seek.

Each individual handles risk uniquely.  We find that in each couple there is usually one that is more conservative and one more willing to take risk.  One of our roles is to help couples come to the place where they are investing for a greater return without losing peaceful sleep each night.