There is risk in everything.
Keeping your money under the mattress carries the risk of losing value to inflation. Investing everything in individual stocks carries the risk of waking up to a price drop because a CEO got chatty online over the weekend.

The goal isn’t to eliminate risk, but to take the right kinds of risk for your situation and manage them intentionally.

Key Takeaways

Risk is everywhere- There’s no such thing as a risk-free choice. Even sitting in cash carries the risk of falling behind inflation.
Playing it too safe- Avoiding risk might feel comfortable, but over time it can jeopardize your ability to reach your goals.
Discipline beats excitement- Don’t chase what’s trending. Follow a process, stay patient, and keep emotions in check.
Risk, when guided by purpose, becomes power- Every risk should serve a goal. When risk is aligned with your objectives, it becomes a tool for progress, not a threat to avoid.

Why Risk Is Unavoidable

Every financial decision comes with tradeoffs. When you invest, you accept uncertainty in exchange for growth. When you stay in cash, you protect principal but risk falling behind inflation.

True diversification means spreading your risk across different outcomes. The aim is not to avoid every loss, but to prevent any single event from derailing your plan.

Common Risks in Financial Planning

The Risk of Missing Opportunity

One of the most overlooked risks is not taking enough. Holding too much cash or waiting for the “perfect time” can feel safe, but over the long run, it can cost you more than a market downturn ever would.

Think back to 2008. Investors who sold during the downturn avoided short-term losses, but many never re-entered the market in time to benefit from the recovery that followed. Those who stayed invested, or rebalanced through the decline, often ended up better off within just a few years.

When investors play it too safe, they underestimate how much growth is needed to meet their future goals. A portfolio earning three percent might feel stable, but if inflation averages three percent as well, that “safe” return only keeps you even. And after taxes, you may actually be moving backward.

As financial author and industry veteran Nick Murray often explains, the real definition of long-term risk is the failure to achieve your goals. Avoiding temporary volatility might protect your emotions in the short term, but it increases the likelihood that you’ll fall short when you need your money most. The true goal of investing is to have more than enough in retirement to fund your needs, support the people and causes you care about, and prepare for the unexpected.

Keep enough cash for short-term needs, but allow the rest of your portfolio to take part in long-term growth. True safety comes not from avoiding risk, but from accepting the right amount of it for your goals and time horizon.

Source: First Trust Advisors L.P., Bloomberg. Daily returns from 4/29/1942-12/31/2021. Past performance is no guarantee of future results. These results are based on daily returns-returns using different periods would produce different results.

The Risk of Misreading Safety

Some of the riskiest decisions investors make are the ones that feel the safest. Holding too much cash, keeping everything in a single company or industry “because it’s an industry I know,” or waiting on the sidelines all feel comfortable, but comfort is not the same as safety.

True safety comes from balance and time. A portfolio that grows steadily and weathers volatility over the years is safer than one that feels calm today but jeopardizes your ability to fund long-term goals like retirement or college. The goal is not to avoid volatility, but to give your portfolio enough time and diversification to make volatility work in your favor.

The Risk of Getting Caught Up

A great company or investment can still disappoint if you buy it at the wrong time or for the wrong reasons. The biggest investment mistakes rarely come from choosing bad companies, but rather, they come from letting excitement replace discipline.

When markets are rising, even cautious investors can get pulled into performance chasing. Buying high feels justified when everything looks good, but that optimism can make risk invisible. Good investing is less about finding the “perfect” investment and more about having the patience to buy and hold it for the right reasons. Discipline in price and timing is part of managing risk.

Risk & Return Move Together, but Not Always as Expected

Taking more risk does not guarantee higher returns. It widens the range of possible results, which means more potential upside and more potential downside. Managing risk is about controlling the downside while staying invested for the long term.

Set an allocation that fits your comfort and revisit it when your goals or circumstances change.

The Real Edge: Knowing Which Risks
Are Worth Taking

Great investors succeed because they understand which risks are worth accepting and which should be avoided.
They don’t eliminate risk. They take risks intentionally.

The right risk is the one that has a purpose. It serves your goals and fits within a larger plan that balances growth, liquidity, and protection. Every risk should have a reason behind it. Whether it’s to outpace inflation, build wealth for the next generation, or create income that lasts through retirement, it has purpose.

The investors who succeed over time aren’t those who take the biggest swings or avoid risk altogether. They are the ones who build a plan that allows them to stay invested through the full cycle of emotions, so they can participate in the gains when they come.

Start with your objectives. Take calculated risks that serve your plan, not reactionary ones driven by emotion. Risk becomes your ally when it is taken with intent and managed with discipline

Risk is not the enemy.
It is the price of progress.
The goal of financial planning is not to eliminate risk but to understand it and take it intentionally so your money supports your goals over time. The future is not a single path. It is a range of potential outcomes that vary in likelihood.

It is important to understand that markets move in probabilities, not certainties. A resilient plan doesn’t rely on predictions, it is built to function even when the unexpected happens.

So in short, sit back and enjoy the ride.

Understanding Risk: How to Take the Right Kind, Not Avoid It