Don't confuse risk awareness with risk aversion

A few people close to me have formed the impression that, because I'm interested in (or perhaps obsessed with?) risk and risk management, I'm "risk averse". 

If I'm constantly looking at risks, I must be risk averse, right? 

Not entirely. 

Having an eye for risk doesn't make you risk averse. It helps you take risks with open eyes. In fact, it's likely to make you more clear minded and sophisticated about the risks you take.

It's true that risk awareness makes me more conservative in some areas of my life. But risk awareness also encourages me to be more risk (and reward) seeking in relation to certain arenas of my life than others:

  • On several occasions, I've resigned from good positions without having another role lined up. Many people would never take that risk. In each case it has worked out very positively for me. 
  • I invest my financial assets aggressively because I'm confident that, in my position, the long-term rewards outweigh the risks, and that I'm taking all of the necessary steps to minimise the risks. (For example, diversifying and keeping fees as low as possible.)
  • I'm writing a blog and expressing opinions that may come back to bite me, because I think the benefits outweigh the risks. 
  • I've been known to take certain types of social risks that many others don't, because I know that the downside is usually much less than we're wired to perceive, and the upside is potentially great.

It's true, I'm "risk averse" in certain domains compared to other people. And there are risks that I simply refuse to take - particular those that have the potential for catastrophic ruin.

And temperamentally, I probably am fairly conservative when I'm low on energy or haven't given much thought to something. 

But there are many domains where I'm "risk seeking" in way that that many others aren't.

Part of this is because I understand that "risk" doesn't relate to any single option. Risk is inherent with any decision we make. Including decisions not to do anything.

A key reason for this is because I try to keep my eyes open to uncertainty and the potential for downside and upside in a given situation. 

Related:


A quick qualification regarding being "risk averse". Anyone in their right mind is risk averse. No one wants to put anything at risk if there's nothing to gain. The question is the degree to which we are risk averse. We all stand at our own position on the spectrum in terms of our tolerance for the risks we are prepared to take for a given reward.

Sonnie Bailey

Sonnie is the founder and principal of Fairhaven Wealth.

Before founding Fairhaven Wealth, Sonnie worked in the legal and financial services industries for over a decade.

Sonnie first became involved with financial advice as a specialist financial services lawyer. For many years, he was an “adviser of advisers”, reviewing thousands of advice files prepared by hundreds of financial advisers, and providing feedback in relation to the quality and appropriateness of advice; industry best practice; risk management; and regulatory compliance. He has published work in industry publications and spoken at various financial advice conferences.

Sonnie has also worked with banks, investment management firms, insurers, and derivatives providers.

Sonnie has worked as a private client lawyer, focusing on succession, estate planning and trusts. He ran his own legal firm in Australia before relocating to New Zealand. He has also acted in independent trustee and company director positions.

Sonnie is passionate about helping people achieve their goals and manage the risks to which they are exposed.

He has written extensively on his blog, New Zealand Wealth and Risk, which can be found at www.wealthandrisk.nz.

Sonnie is married to his wonderful wife Chrissy, and has two young children, Ben and Anna.