Many people think that investing is risky. When I was growing up, my poor dad believed this. Because he valued comfort and security, he felt that smart people got a good job and saved their money.
My rich dad, on the other hand, felt that my poor dad’s plan was risky. He aspired to own his own businesses and to invest his money rather than save it.
As a young man, I had to decide for myself who was correct, my poor dad or my rich dad. It was not an easy decision. Both men were confident in their opinions, but after much questioning and study—as well as an understanding of what I wanted in life—it was clear that my rich dad’s path was the path for me.
Along the way, I learned 3 key reasons why my poor dad really thought investing was risky—and why it was, for him and others like him.
1. Lack of training
Most people go to school to be trained on how to be an employee or self-employed. School teaches us things like reading, writing, and arithmetic, all good things and useful for the work world. It teaches us how to execute on orders from our superiors and be where we’re told to be at the right time – the mindset of an employee.
School doesn’t teach how money works, or how to have it work for you. It doesn’t teach you the skills necessary to become a business owner or an investor. Those are skills that you must seek out and teach yourself.
As a result, most people simply lack the training necessary to know how to invest in a way that isn’t risky. And without training and knowledge, investing is risky.
2. Lack of control
During the last Great Recession, I’m sure that many people came to believe that investing was risky as they watched their stock portfolio’s tumble. The reality is that most people don’t have a true investment plan.
Instead, they work hard and hand over their money to an “expert” who invests it in some mutual funds, stocks, and bonds. The problem is that these types of investments leave you very little control.
You are at the mercy of the markets and managers. That is a position of risk.
Successful investors, on the other hand, strive for as much control as possible when it comes to their investments. That is why I invest in businesses where I have decision-making power, and it is why I love real estate. In both cases, I have a lot of control over what happens with my investment.
3. Lack of knowledge
Most of us know intuitively that if you want a real deal, you need to be on the inside. You often hear someone say, “I have a friend in the business.” It doesn’t matter what the business is. It could be to buy a car, tickets to a play, or a new dress. We all know that “on the inside” is where the deals are made.
The investment world is no different. As Gordon Gekko, the villainous character played by Michael Douglas in the movie Wall Street, said, “If you’re not on the inside, you’re outside.”
Employees and self-employed people generally invest from the outside. They have limited knowledge of what they are actually investing in. Those who operate as business owners and professional investors have detailed knowledge of what’s going on inside of their business or their investments.
They are the drivers of the business or investment, and because they have the insider knowledge that goes with that, their investments are far less risky.
Moving from a position of risk to a position of security when it comes to investing takes financial education and practice. I encourage you today to take an honest look at your investment position and to take the steps necessary to gain training, control, and knowledge. It will be one of the wisest decisions you can make.