One of the challenges that comes with writing about financial advice is making it interesting enough for (non-financial) people to read, while keeping it simple enough to make sense – all without being moronically dull.
In other words – how do you make this stuff not boring or basic?
It’s a balance I aspire to with these posts, while acknowledging the high odds of falling short. Between the innate complexity of what we’re discussing and the regulatory guardrails I have to keep within, it can be challenging.
Fun, but challenging.
Risk is Everything
This is particularly the case when it comes to writing about “risk”. I’ve written about this in the last few issues – you can find those pieces here and here – because it’s such a key part of every single decision we make about money.
How we feel about risk dictates the decisions we make about what to do with our money. Our fears and worries can slow us down, while our excitement and greed can drive us.
Our assessment of risk also pegs our return expectations to a certain level. We’ll tolerate a higher level of risk, generally, if we’re getting paid a higher return to compensate.
Risk permeates every single level of the financial world and, as described in the surprisingly compelling Against the Gods: The Remarkable Story of Risk, it has been a force behind significant leaps in human history.
So why, then, if risk is perhaps THE most crucial element of the financial world, is most stuff written about it so bloody boring?
The In Club
Well, there are two reasons that I can think of:
Most of the material written about risk has been written by experts, for experts.
We’re all just huddled in the corner of a conference room, talking to each other – while the audience sits, waiting for us to bother actually speaking to them.
Ironically, one of the risks that come with writing about risk is that our friends in the legal profession will find something that’s outside the bounds of legally appropriate material and drop the hammer on us.
So we either pre-empt their concerns and edit what we’ve written into a turgid mess of mitigation and redundancy, or pass it to them to do it themselves.
Of course, more cynical readers might also believe that the layers of complexity woven into the dull world of financial writing benefits those in the ‘in club’ – if it’s all so mysterious, after all, then our value as guides through the muck is just that little bit more important.
Regardless of the reason, it borders on tragedy that we’ve managed to take an elemental part of financial literacy (and maturity) and made it so boring that most people tune out as soon as the words ‘risk profile’ come out.
Even worse, we’ve taken this powerful, nuanced, valuable force and made it into a big, blunt shadow for people to fear.
“I don’t want too much risk”.
“Oh, that’s too risky”.
“That sounds very risky.”
Which is a real shame.
Because risk is fascinating, powerful, beautiful, fearsome, intimidating and beneficial.
And those of us in finance write about it like its nothing more than an item on a bureaucratic checklist.
What Is Risk (For Actual People)?
Enough of that.
Let’s talk about what ‘risk’ really is, for actual people who live in the real world.
First, the difference between what we often think risk is – and what it really is:
For most people, “risk” is a thug that stomps into their lives occasionally to flip tables, burn the furniture and kick out the windows.
It’s something to fear.
It’s the spectre of losing all of your money, or running out, or being left behind, or hurt, or penniless.
It’s all or nothing; dramatic and scary.
The Silver Lining
But in reality, risk is more like the weather.
It can’t be avoided and it brings variety into our lives.
We can try to predict it, but it’ll make fools of us every so often too.
And just like the weather, people often want different things to happen.
Rain makes some people miserable and makes others dance in the fields.
Sunshine brings grins to some faces and burns to others.
Wind blows my washing over the fence, but brings a glint to a sailors eye.
An Actual Risk Profile
So it is with risk.
Because we need risk in our lives. It invigorates things, it makes them grow and improve and develop.
More than that – we can’t get rid of it, so we need to live with it. Because the future is uncertain, which makes risk guaranteed – just like the weather.
It brings opportunity, fear, possibility, worries, wins and losses. And it’s how we accept and approach that risk that influences our financial decisions.
Risk forms a spectrum along which every single person sits – somewhere.
And finding where you fit on that spectrum, well, that should be the point of financial communication and education.
This, this is your ‘risk profile’. It’s relevant to your situation and reflects your needs, wants and expectations. It caters for your worries, hopes and aspirations.
But communicating these ideas is difficult – they’re complex, they can be counter-intuitive and they can be scary.
Which is why in the financial world we resort to either banalities (rote questionnaires, checklists, scores) or cliches (baskets full of eggs, rollercoasters, bears chasing bulls, sleepless nights).
And we brush past the most interesting and powerful element we get to work with every day.