getting comfortable with risk

let’s start out today with a few questions:

how comfortable do you feel with the general concept of risk? are you likely to make big changes in life that come with risk, or stick with what’s comfortable, what you know, or what comes with little exposure?

on the finance side, do you view yourself as risk-averse or risk-tolerant? have you switched from one to the other over time? if so, what convinced you to change your mindset?

we’d love to hear from you guys on these questions!

we are now in a place, financially and in life, in which we have fully embraced and accepted a certain level of risk. our growing stockpile is heavily invested in index funds (for our taxable savings, which will sustain us until 59 1/2, when we can access 401ks), and in mutual funds (for our 401ks, because until we roll them over after we quit, we don’t have other options), and only a small amount of cash (an ally savings account, which we use primarily to dollar cost average our investments over to vanguard). this allocation is mostly stocks, and a few bonds — in other words, investments which could go poof at any time, however unlikely that is.

and the whole idea of early retirement of course feels like a risky proposition — what if our savings run out? we’re willingly leaving the job market — what if we no longer have employable skills and need to earn more money? what about all the unknowns we can’t be sure of, like health care costs, natural disasters, or inflation? what if we wake up one day, realize we don’t like being frugal, but have been then dealt our careers a fatal blow?

but here’s the thing, to misquote the princess bride: life is risk. anyone who says differently is selling something.

and to back up a bit, we are not by nature risk-tolerant people. or, to be more accurate, we’re half risk-averse, half risk-tolerant. the wife, pre-marriage, used to only invest in bond funds, because stocks felt too risky. (yes, really.) the husband, however, once quit his job to travel for six months, and has at times bought individual stocks (whose poor performance did nothing to quell the wife’s fears).

sidebar — we’ve got to figure out better euphemisms for ourselves. mr. and mrs. onl don’t feel quite right, mainly because we don’t have the same last names in real life. we aren’t actually mr. and mrs. anything! any suggestions? ;-)

what helped us embrace risk more fully was the realization that literally everything in life and finance comes with risk. think your money in your savings account is safe? sure, it can’t go down in value, but you’re actually guaranteed to lose spending power on savings, because the interest rate can’t keep pace with inflation, at least not anymore. and it certainly won’t grow in our current interest rate environment. so the safest place of all to park your money is a guaranteed loser. if you want any shot at growth in your nest egg, you need to go the investment route, and be willing to stick your neck out, at least a little bit. or how about the risk of non-action: you stay in your career, you don’t travel more than a few weeks a year, you don’t spend enough time with aging loved ones, and before you know it, you’re full of regret for not living life to its fullest, of missing your window to do the things you’d always dreamed of. the path of least resistance is also the path of least reward.

though half of the our next life team is risk-averse by nature, we’ve jointly come to realize that we are not path of least reward people. it’s not even about the money — it’s about the freedom. we want the time and flexibility to do big things, dream big dreams. we have a vision for what some of that is, but a lot of it we want to give ourselves time to figure out. we think once we’re retired, we’ll get to know ourselves in a whole different way, and maybe then we’ll figure out if there’s anything else we want to do when we grow up.

for us that’s worth the risk. how about for you?