The Cost of Not Taking Risk

Amit is a good friend of mine. I know him for the past forty years now. Hence, I presume, I know him inside out. I am well aware of all his behavioral traits. He has the best of the qualities one would like to see in an individual. With these great qualities, he has done very well for himself. However, one quality that I found very interesting is risk aversion. He is extremely risk-averse. He does not like to take any risk whatsoever.

Amit is afraid of the height. He has a height phobia. He is not comfortable while crossing the road as well. For someone, these are routine actions. But for Amit, these physical actions are riskier to perform. It may be a conscious or unconscious action. I had observed similar behaviour of Amit while dealing with financial decisions. Amit was so risk-averse that he was hesitant to buy a flat to reside in. He was sceptical while dealing with the builder. He was not comfortable availing the home loan and wasn’t very sure how he will pay off the EMI. This caused unnecessary delays in buying the property. Similarly, he was dead against investing in the stock market. He was comfortable investing all his capital in fixed deposits.

Being risk-averse in some physical activities may not impact our life negatively. At times, being extra cautious may even be advantageous. However, while dealing with financial decisions, this behaviour definitely proves costly. This is the opportunity cost. This is the cost one pays for not taking timely decisions. It is good to be careful, cautious and calculated. However, not taking a risk at all is a huge wealth destroyer.

Do you want to know how much? Look at this data:-

Rs 10 K/month SIP started in:-	Wealth accumulated in year 2021 @ 12% (Rs)	​Opportunity Cost (Rs)
year 2000	1.13 Cr	Nil
​year 2005	​57.66 L	​55 L
​year 2010	27.19 L	85 L
year 2015	10.47 L	1 Cr

Not taking risk would have cost you Rs.1 Crore. It is too much wealth destruction. This is due to a sheer lack of awareness, ignorance, guidance, and a little bit of risk. I am sure no one would want to get into such a situation.

Willingness to take risks is a personality trait. It varies from person to person. Our behaviour gets evolved over the period. We develop these traits by our upbringing, surroundings, circumstances, experiences, and how we respond to them. We all know that road accidents are on the rise. However with this fear in mind, we don’t stop going outside. There will always be some risk in life. But, we can’t stop living. We have to navigate the risks. We need to introspect our behaviour, realize our shortcomings and improve upon them. If one decides, one can change the entire personality and succeed. It is all in the mind.

So the essential behavioral trait one must develop to achieve financial independence is the willingness to take reasonable risks.

The wise old man, Warren Buffet said,” Risk comes from not knowing what you are doing.”