Most of us perceive uncertainty to be risk.
Uncertainty may or may not be risky. The future could be better than we think. Most people, especially investors, think that if they manage risk things will be better than if they don’t. They are undoubtedly right on that assesment.
The defense to risk
Know what the risks are and know what you must do to reduce them.
There are tools like insurance that do not reduce the risk of an occurrence, but they do reduce the financial effects if one should occur.
There are methods of reducing the probability of occurrence, too. Well maintained wiring prevents fires. Driving sober reduces the chances of a vehicle accident. Eating better foods and exercise, reduce all sorts of health risks.
Investment risk can be mitigated with diversification. Knowledge and analysis will reduce it further.
Understanding your risk profile will help.
It has three parts;
- Ability to withstand a loss
- Tolerance for losses and
- Exposure to loss possibilities
You must understand all three to have a comfortable loss profile.
The defense to uncertainty
The problem with equating risk with uncertainty is that they are quite different aspects of living. Uncertainty is systemic, while risk is more specific. The future is not just unknown, it is unknowable. Trying to assign specific risks to a particular aspect of the unknown is futile. Unknown means you don’t know.
The first defense to uncertainty then is to treat it differently than risk.
The second defense is confidence. Confidence that you will be okay even if unforeseeable adversities occur.
The difficulty in maintaining confidence
There are parents, government and businesses who try to allay the fear of uncertainty by attempting to control what they see as risk.
They confuse things and impose many new variables on the uncertain future. That makes it harder to anticipate even the near term and it becomes futile in the long term.
Become adaptable is the key.
People feel safer when they think someone else is looking after the problem. They end up worse off when they find out the defense was inadequate and they have no skills to deal with the new situation.
Become more skilled and resourceful and a lot of the uncertainty becomes just noise.
Trust yourself to be adaptable.
Confidence works as a defense to uncertainty. Trust that you have great strength, great skill, and great ingenuity. With those three attributes, what could come along that you could not deal with? There are probably some things and you should know what they are.
Manage those possibilities as risks.
The ultimate form of adaptation to uncertainty is to have choices, options. The most successful people avoid one way decisions. Having another way to move already prepared if the first decision fails is smart. It costs a little more, but if you need the option, its cost will look tiny.
Learn to develop plan B as part of the assessment. If it fails too, there are 24 more letters in the alphabet.
Don Shaughnessy arranges life insurance for people who understand the value of a life insured estate. He can be reached at The Protectors Group, a large insurance, employee benefits, and investment agency in Peterborough, Ontario. In previous careers, he has been a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.
Please be in touch if I can help you. firstname.lastname@example.org 866-285-7772