Learning to Balance Risk and Reward

You know the saying, “No risks, no rewards.” From a very young age, our parents, the media, and even our teachers push us to take some risk if we want to open a flood gate of opportunities. We use risk and reward almost every day without noticing. However, when we don’t learn to balance this relationship, it’s easy to fall for addictive behaviors like gambling. After all, the reward portion of this relationship can be quite addictive.

When it comes to learning to balance risk and reward as part of your self-development progress, concepts similar to investing apply.

First, Recognize Your Level of Risk

Before we move forward, let’s take a moment to analyze our past behaviors. Be transparent and honest with how you take risks. But, also think about the type of risks you’re willing to take in the future. Use a piece of paper to write down your level of comfort in taking risks financially, career-wise, and relationship-wise.

Low Risk-taker: You’re ready to take a modest amount of risk, and you’ll be happy with having any potential rewards from your risk.

Medium Risk-taker: You’re comfortable with a moderate amount of risk that can yield rewards, but will most likely have ups and downs before you can indulge in the benefits.

High Risk-taker: You’re ready to take bold risks in the pursuit of tremendous benefits, and you’re aware that along the way, your investments might fluctuate.

The Importance of Stress in the Risk-Reward System

We don’t need science to tell us stress plays a critical role in our decision-making skills, but there’s research to prove it. When we’re under pressure, our brain processes risk and reward differently. To some, stress causes them to focus more on the reward after taking the risk, which means they’re more likely to make riskier decisions. While others will become more risk-averse.

3 Ways to Balance Risk and Reward

In life, just like in business, the way we balance risk and reward look strikingly similar. When you start investing in the stock market, the way to balance your risk are what people call investing-101. It seems out of context, but we can apply the same principles to find out how we can take risks in our professional lives and invest in our self-development.

1. Find Your Risk Zone

Use the three concepts discussed above to find your comfortable risk zone. Once you land on the one that makes sense for your decision-making process, it will become easier. Make sure you can identify the type of risks that fall under this category and when you are willing to execute.

2. Have a Plan

When you start investing, you have a plan that will help you achieve some rewards within your comfort risk zone. While in life, we can’t plan for everything that will happen, we can still try to have some guidelines that will help us reach a goal. Use a goal-planning system to help you find your self-development journey.

3. Diversify Your Risks

Don’t put all your eggs in one basket. Avoid having a gambling mentality of going “all-in.” While taking these bold risks can be exciting and sometimes pay off, the risk is frequently higher than the reward. Make sure you diversify your chances in your self-development journey by learning different skills, being open to new opportunities, and stepping out of your comfort zone.

Learning to balance risk and reward is an ongoing process. The balance will come with maturity and a lot of trial and error to use as a reference. What matters is that you never deprive yourself of taking new risks and continue to invest in yourself for self-care, not for rewards.