Grabbing your Investments by the Horns

In the first week of November, a rowdy, brutal and passion-inducing wild-west event is being held in America. No, I’m not referring to the Presidential Election. In fact, it’s the Professional Bull Riders (PBR) World Championships in Vegas. Forget the dusty old image of broncos – today professional bull riders can make $1M per year. This may not seem like much compared to golf, tennis or football, but for cowboys it’s a path to a very good livelihood. It's one of the fastest-growing sports in the world, with corporate sponsorship, huge arenas, and superstar contestants. The drama, glamour and glittering prize funds have attracted over 300 million sports channel viewers, leading to US talent agency WME-IMG buying up the event for $100 million in 2015. Such is the growing fascination with rodeo as a sport, Netflix has even produced a six-part documentary series about it.

 

 

If you’re not the squeamish type, I recommend you watch Fearless (trailer here), which follows the top Brazilian and American riders on the international circuit. More than marvelling at the spectacle of men saddling themselves to an 1,800-pound bull and trying to hang on for 8 seconds, the series takes a look inside the sport, asking those brave or mad enough to ride professionally what motivates them to undertake such huge risks as their career. Is it their passion for bull riding? Is it because they want to be world champion? Or have they found a path out of poverty?

 

 

Throughout the film, the cowboys say that they love bull riding and wouldn’t want to do anything else – and that it’s not about the money. However, there are other moments that show the sacrifices behind the scenes. We see 2015 Rookie of the Year Kaique Pacheco leaving his tearful mother; former World Champion Guilherme Marchi considering the very real possibility of dying doing the sport he loves; and Robson Palermo being carried into an ambulance as his wife cradles their new-born baby. The financial rewards of winning would change their lives but for all the big winners there are hundreds that never achieve the coveted ‘gold buckle’. They will end up disappointed at best and, at worst, seriously injured. These are life-changing stakes with life-changing risks if it all goes wrong.

 

 

Nail-biting to watch, Fearless got me thinking about the risks more familiar to me. As a financial planner, I spend a lot of time with clients considering their lifestyles and the risks and rewards of investing. Unlike bull riders who risk everything, most of us have a natural risk tolerance, a level of danger that we can afford to take or that feels comfortable within our circumstances. This plays a part in the personal decisions we make about our life choices, work and finances.

 

 

The average person spends half of their life working. When considering our careers, we often have to balance the potential enjoyment we will get from a role with the financial rewards available. If you’re lucky, you can have both. For many it is a compromise. At times, making less money but having job satisfaction may be healthier. It is surprising how often people make the opposite decision. They ride-out unhappiness in their work in exchange for a greater pay cheque. Life may not be as risky as a rodeo, but it is all precious time not to be taken for granted. Is a highly demanding career worth the risk to your health, relationships and mental well-being? Having a clear picture of your finances and planning wisely may help you to realise that you have more options.

 

 

As part of our engagement process at First Wealth, we use a tool that measures emotional risk tolerance. By taking clients through a series of questions, our online assessment calculates how much risk a client is prepared to accept. We compare risk tolerance against the rate of return required in order to achieve lifetime goals. What a client needs, expects and is comfortable with are not always the same. Risk profiling provides a helpful metric and can aid decision-making if a trade-off between risk and return is needed.

 

 

We like to think of it this way: assessing your risk tolerance is actually more like a conversation. The level of risk you need to take and the level you might be comfortable with are not always the same, so it may be necessary to find a middle ground.

Investment risk should be linked to your personal life goals – whether that's buying a boat or a dream holiday, or helping your children with their first step on the property ladder. Associating risk with your objectives is a much more focused and pragmatic way of making your investment decisions than simply taking an off-the-peg 6% yield on your investment, which might match your risk profile but not your life goals. An effective financial planner will help you to work out what success looks like for you. If you understand your emotional attitude to risk and have defined objectives, you are more likely to achieve your goals and have a positive investment experience.

 

 

Towards the end of Fearless, PBR veteran Renato Nunes reaches his breaking point. With only one ride to finish the season, he has an unremarkable buck-off, walks over to the officials and announces his immediate retirement. Interviewed earlier, he had said that he was competing in his last world championship event only for the money. He wanted to be back in Brazil with his family. When he realised that he didn’t have enough points to win, he quit on the spot. He didn’t need or want to spend another second on the back of a bucking bronco.

Few of us live as dangerously as bull-riders but the balance of risk versus reward is nevertheless always present in our lives. Having a better understanding of your risk tolerance, seeking out sound advice and defining clear financial goals will give you more confidence to make life choices. You’ll become a more fearless investor.

 

 

If you need any help with managing your investments or with any other aspect of your financial lifestyle planning, then please give us a call on 020 7467 2700 or email us at: hello@firstwealth.co.uk.

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