The Rich Increase Their Risk Threshold, The Poor Decrease Theirs
Gary’s Words of Wisdom (WOW):
Standing Still Does Not Decrease Risk, it Increases It
One of the concepts I’ve learned recently after listening to a podcast interview of a multi-millionaire was the concept of exercising our risk threshold muscles.
The man shared about how to build muscles, one must exercise a particular body group to the point where the muscle breaks down. It’s at that point where the body sends signals to the brain to send protein to that area and rebuild the muscle, bigger than before.
He shared about how entrepreneurs need to exercise their risk threshold like a muscle. How we need to gradually increase our risk threshold so that we can obtain greater gains in our business.
We all know the concept that the greater the risk, the greater the reward. I’m not telling you to go out there and take giant risks that are way out of your league. I’m not telling you to take risks that could bankrupt you instantly. Nor am I saying you don’t take calculated risks.
All I’m saying is that we need to exercise our risk threshold muscle. When I first entered the real estate industry, I thought investing in real estate was risky, but as I developed market knowledge and market intelligence, it is no longer as risky as I first perceived it.
If you ask someone who has never invested in stocks whether it is risky or not, they’d probably say it’s risky. But if you ask a day trader whether investing in stocks is risky or not, they’d probably say that it’s not.
The key point is that risk is very subjective. To me, investing in currency exchanges is risky but to a currency trader who is well versed in that, it would be significantly less risky. Something is less risky if you are proficient at it and have studied it for some time.
One common theme I have observed of the rich is that they are constant learners.
They are always trying to develop proficiency in multiple things, especially their investments. To the average person, the rich seem to be taking massive risks, but to the rich, they don’t find it risky because they have studied and developed proficiency at their investment over a long period of time. They have exercised that risk threshold muscle over a period of time and it’s not risky for them to take that leap.
In real estate, I work with clients who are incredibly hesitant to purchase their 1st investment property and then I see the rich buy 300 unit apartment buildings as if it was nothing. However, what we typically don’t see is the years of risk taking that the rich went through.
The rich started off by buying their 1st home.
Then they bought their 1st investment property.
Then they bought more small investment properties.
Then they bought their 1st small multi-family investment property.
Then they bought more small multi-family investment properties.
Then they start buying larger multi-family investment properties.
As you can see, there’s a progression. One doesn’t just come off the street and buy a 300 unit apartment building with no experience under their belt. They start off small, learn lessons, make mistakes, and grow along the way. People don’t tend to see the years of education they go through to get to that point. They don’t see the hours of due diligence done along the way.
You see, it all starts with taking small calculated risks. Then, as you develop proficiency in the small things, you can then increase your risk threshold and take some slightly larger risks. If you do this consistently and learn from the mistakes you make, it’s only a matter of time before you take what some call the “big” risks and you’ll reap the “big” rewards.
But to you, they’ll be considered just a slightly larger risk than the previous risk that you took.