This past weekend, I was watching an NCAA football game between Michigan State and Notre Dame. The game itself was very entertaining, but it ended on a very risky call by the Michigan State coach (who later had a heart attack evidently). Instead of going for a Field Goal in overtime, to extend the game to another overtime session, Michigan State attempted a fake field goal, to go for the win.
On the surface this seems like an “all or nothing” play by the Spartans, and I am sure if it had not worked as planned, all the pundits (including me) would have been asking, “Why do something like that, why not take the safe route?“, but it wasn’t that big a risk.
It was not an all-or-nothing play because a touchdown was not needed, only a first down was needed, (and there was plenty of time left for more plays) so it was not that pretty drastic a play.
In your investing and finance are you playing a conservative game? Are you going with the safe plays? If you are good for you, that is how you get your finances humming and working to your satisfaction, the Obvious Safe choice is the right choice, most every time.
What happens if a risky financial play arises? You can try something that may have a high payoff, but it is also high risk. What do you do? The only sane thing to do is analyze the risks and see if the risk is worth your while.
I am not talking about you should risk getting a payday loan to tide you over. That is not a risk, that is Kamikaze crazy financial stuff, I am thinking more in investing, or maybe taking a risk paying off a debt quicker. I am also not saying that you should act on every "tip" you get from your Uncle Leo on the next big stock (unless your Uncle Leo is a stockbroker, and even then, be very skeptical).
If you can live with the risk and the possible negative consequences, and the payback for this risk is sufficiently high (and you can be sure you won't self-flagellate yourself for trying, if you fail), then consider it, but don't become an "All or Nothing" risk junky either.
Taking a chance can pay off, sometimes, but you need to think about it before taking it. Also before you take the risk, figure out what "winning" means, and make sure that you take your winnings from your risk.
Good analogy of risk, but I think using football as a reference to investing & finance is dangerous. In football there is a high reward to that risk which often includes the coach’s job security and players future draft status’ (or contract). And how about the ticking clock, where you know at some point you need to pull out all the stops (hail mary, fake punt, onside kick, going for it on 4th down inside your own 20) even though the odds are drastically against you? I hope I never have to throw a hail mary in order to save my retirement 🙂
I would liken those last second risks to playing the lottery, acting on a tip to buy a penny stock, or even buying on high-margin.
However there are times (like you said) where a gamble that seems risky maybe earlier in the game doesn’t have the same consequences.
My own philosophy is to never act immediately on any investing “tip” or idea that I hear about. Often times the best strategy is simply to wait.
Precisely the point my hack-kneed prose was attempting to capture. A hail mary to save your retirement sounds a bit too scarey!