Risk. Just the word can cause anxiety in some people. The thought of being risky in any way in their life, whether it’s in their business or their money, can cause them to feel nervous and unsure. We’re taught from an early age that risk is inherently bad in many instances, but is that true?

Many of the most successful business people and financial professionals would say risk is an inherent part of a money-making strategy. Not only can riskier decisions lead to higher returns, but when you’re willing to take risks you can also avoid the pitfalls of a risk-averse financial strategy.

Below are some reasons you should consider embracing the concept of risk when it comes to your money.

Risk-Reward Ratio

When you’re considering whether or not risk is right for you regarding your financial strategy, think about what penny stock guru Timothy Sykes says about his method of investing. He says, in his guide to getting started with penny stocking, that while investing in something like penny stocks is dangerous, the risk-reward ratio is one of the highest you’ll find, particularly if you take the time to understand the logistics of this trading style before jumping in. While penny stocks may not be for everyone, the core concept is universal. When you’re playing it safe with your investments and putting all of your cash somewhere like a money market, there’s essentially no risk, but there’s also no reward.

Inflation

By not being riskier with your money, you can actually be exposing yourself to risk. It sounds complicated, but what this ultimately means is that by keeping large amounts of liquidity in an interest-bearing savings or money market account, you’re just letting it lose value, without protecting yourself against inflation. Over the years, your dollars are going to buy a lot less, so even if you think you’re doing a great thing by keeping a significant amount of money tucked away in a savings account, you may find this isn’t a valuable strategy at all.

Outliving Your Safe Investments

You may not be a person who avoids risk simply by hoarding large amounts of cash in your insured bank accounts, such as checking or savings. You may think you’re being somewhat risky by investing in things like CDs or government bonds, but in reality, this can be problematic as well. You may find that you outlive your money. It’s not enough to only invest in places that are going to give you slow and steady returns, particularly if your focus is your retirement years.

As a conclusion, the best strategy is first to gain an understanding of exactly how risk-averse you are, and balance this against the level of risk you can reasonably take with your money. You can do this on your own, or you can begin working with a financial professional to understand the right types of risk. By taking baby steps into riskier investment opportunities, you can then start exploring your options and become less risk-averse. Often, the most successful long-term financial strategies are the ones that focus on combining some liquidity, with a fair amount of risk, and then some more conservative investments.

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