Chapter 42. What Risk?

LIFE IS ABOUT RISK. Creating the life you want for yourself requires risk taking. And it also requires saving. Try to think more broadly about risk in all parts of your life by taking this quiz:

  1. You and your spouse are ready to have a child. Both spouses work, but the husband's company announces coming layoffs. You would. . .

    1. proceed full steam ahead; you're not getting any younger.

    2. figure that if the husband were to be laid off, he could perform child care duties while thinking about his next career move.

    3. put your family plans on hold for a year while the two of you get the lay of the land.

    4. reconsider having a family; life is too uncertain.

  2. Your friend takes you to an early morning sale at a nearby clothing outlet. The prices are great, but you can't try anything on and you can't return anything. You. . .

    1. go for broke, buying five suits that you figure cost half what you would pay in a department store.

    2. Choose one $500 item. You saw the same piece of clothing for $1,000 and you're willing to bet that you can alter it if it doesn't fit.

    3. Buy a couple of low-priced items figuring that you'll just lose a little if they don't work out

    4. Spend two hours writing down sizes, prices, and brand names. You plan to go to the local department store and try these items on so that you can come back and buy them, knowing that they will fit.

  3. After you make an investment you typically feel

    1. thrilled.

    2. satisfied.

    3. confused.

    4. regretful.

  4. It's time to plan you vacation. You

    1. take off on a mystery tour where the destination isn't revealed until you're en route.

    2. discover a small ad in the newspaper for a 50 percent off charter flight to Thailand. You mail in your deposit and delight in your good fortune.

    3. call a trusted travel agent to suggest two or three places that he knows you will like and then pick the most economical of the lot.

    4. don't have to plan because you always vacation at the same spot; you know it will be comfortable.

  5. When faced with a major financial decision, you

    1. flip a coin.

    2. go with your gut.

    3. research the options.

    4. call each of your friends and ask for advice.

    5. agonize.

  6. You think your boss is brilliant, but with him in charge, you're never going to get anywhere. Then he decides to start his own business and invites you to come along as his No. 2. You

    1. go with him for a pay cut and a share of the company.

    2. demand a higher salary instead of equity in the company.

    3. stay where you are and hope to get his job.

If you picked the first answer to each of these six questions, you are adventuresome indeed—maybe even too much so. Be careful when picking investments not to go overboard. If you picked the final answer to each question, you may sometimes feel virtually paralyzed when making financial decisions. See what you can do to loosen up your thinking a bit. In any case, use these questions to get you thinking about how you approach risk and whether it's working for you in investing—and in your life. We must all take prudent risks in order to improve the quality of our lives. As they say in sports, no pain, no gain.

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