Taking risk is a natural part of human behaviour and it can come in many forms. There are physical risks like bungee jumping, emotional risks like beginning a new relationship, and financial risks like investing an amount of money today in hope it will be worth more in the future.

Risk exists because of the inevitable truth that the future can never be determined with 100% accuracy.

The way we mitigate risk is to thoughtfully consider it. Every individual then finds themselves somewhere on the spectrum of being risk-tolerant or risk-averse.

‘Logical’ people tend to seek their perception of definite truths in situations. This attracts them to careers like education and engineering. These people tend to prefer seeing the entire picture than to act on impulse, often making them risk averse. It also makes them more difficult to argue with when their ‘mind is made up’.

The more impulsive among us usually find themselves more comfortable in an entrepreneurial setting (like Richard Branson), being more tolerant of risk and uncertainty which exposes them to more opportunities (although also exposed to more threats).

Your personal position on the spectrum of risk tolerance dictates much more about how you live your life. From the asset distribution of your superannuation account to the suburb you live in and the places you choose to travel (if at all).

For the property investor, it is important to understand the relationship between the risks and rewards of their investment. You might be taking more risk than you need based on your goals, or you might not be risking enough.