How Can You Balance Risk and Regret?

Many investors think of risk primarily as a mathematical concept that measures volatility in the financial markets. Sure, that’s one version of risk. But many types of risk can’t be precisely measured. What about risk in your relationships? In your career? Those risks are equally as real as market risk.

All of the various forms of risk shrink your field of vision at the worst possible time. Risk tends to focus your senses on uncertainty and danger. When you’re in the midst of risk, it’s not unusual to have difficulty contextualizing the specific risk you are facing.

Regret is on the other end of the spectrum from risk. You will always have feelings of regret about some foregone choices. The key is to make decisions with the information available at that time and not dwell on “what could have been” if your decision had been different.

Overall, your goal is to find the “sweet spot” where risk and regret are balanced.

Defining Risk & Regret

In most instances, risk refers to some decision or choice you intentionally make; regret usually denotes something that didn’t do, but perhaps wish you had.

Balancing risk and regret leads you to be optimistic on one hand while being somewhat pessimistic on the other. In my experience, it’s best not to put “too sharp a pencil” on risk. That is, there will always be things you don’t know and can’t anticipate when making decisions. Risk isn’t always exact.

In a practical sense, risk translates into the need to build flexibility and room for error in your financial planning efforts. Life isn’t linear, and financial markets aren’t either. There will always be events, political issues and economic concerns that weigh on short-term market results.

Grappling with Regret

On the regret side of the ledger, looking back over your life, do you have some big regrets? Fast forward to doing the same exercise imagining yourself at age 90. What regrets do you think might surface then?

Avoiding Big Mistakes

You likely can see with both risk and regret that it’s the big ones that matter. You want to avoid risks that are so severe, you’ll never recover. I like to use the analogy of stepping in a hole. If you step in a hole a few inches deep, it’s a setback, but you’ll be able to step back onto your path. However, if you step into a hole that’s a few feet deep, you may not be able to get out without extreme difficulty. You don’t want large risks or regrets that end up as life altering episodes.

The more self awareness that you have about mistakes, the better. You won’t get every decision right. This is where we can help. We aren’t you and therefore can help you see risk and regret more clearly.

Stay Focused

In times of heightened uncertainty, some investors develop “tunnel vision” and become blinded by an overwhelming solitary concern. The fever pitch of emotions can easily drown out logic. Whatever your concerns might be, it’s crucial to realize that we’ve been here before. While the exact circumstances vary, financial markets normally exhibit large swings up and down almost every year. This time isn’t different; it’s the same.

Neither risk or regret should be all consuming. A healthy balance between the two will serve you and your financial future well. Start there. Ready for a real conversation?

Disclosure

Apollon Wealth Management, LLC dba J.E. Wilson (Apollon) is an investment advisor registered with the SEC. This document is intended for the exclusive use of clients or prospective clients of Apollon. Any dissemination or distribution is strictly prohibited. Information provided in this document is for informational and/or educational purposes only and is not, in any way, to be considered investment advice nor a recommendation of any investment product or service. Advice may only be provided after entering into an engagement agreement and providing Apollon with all requested background and account information. Please visit our website https://apollonwealthmanagement.com for other important disclosures.