Risk & Reward - The Calculated Risk
Hello…
It’s been a while!
Life Is Risk And Reward
I was suffering from writer’s block for a while and to be honest, there are only so many interviews you can do before the questions do become repetitive and the general gist of information becomes the same thing. However, I have wondered about my career so I thought I would write something - mainly, about the concept of risk and reward.
It’s generally known that most people are risk-averse. According to The FT, half of 18-24-year-olds are more risk-averse ever since the pandemic and this is actually common depending on someone’s financial health. Those that have money or more money than others are less risk-averse than those that don’t have money.
You’re probably thinking, that doesn’t make sense. Why would you take risks if you have money? Why would you risk losing it? And I guess that paints the picture for those of us that didn’t come from well-off backgrounds. We never had a lot so we’re risk-averse because we don’t want to be in a position where we start getting money and then end up losing it.
An Example of Chance
I think most people are risk-averse because they don’t take calculated risks. I mean, an average day you wouldn’t calculate risk and reward but for most financial decisions, it’s pretty handy. Let me give you an example.
You have £100 and you’re playing a game of heads or tails. If you don’t get the coin toss right, you lose £2 from the £100 you have. If you do get it right, you get double your money. Would you take the risk? I WOULD! The ratio of risk to reward is 2:100 and simplified further to 1:50. A risk to reward of 1:50 means you can lose several times and still have a great outcome.
If you break each outcome down:
Hit: £100 → £200
Miss, Hit: £100 → £98 → £196
Miss, Miss, Hit: £100 → £98 → £96 → £192
Miss, Miss, Miss, Hit: £100 → £98 → £96 → £94 → £188
Miss, Miss, Miss, Miss, Hit: £100 → £98 → £96 → £94 → £92 → £184
The point is, with a risk to reward of 1:50, who cares if you lose a couple of times. The reward is so high you can afford to take those risks. You can lose 10 times in a row and the 11th time, hit the home run, and make a return of 60% on your original £100.
Applied To Careers
Risk and reward can also be applied to your career. Here’s an example. Let’s say your salary is £35,000. There’s an Excel course that you can take that costs £350. This represents 1% of your salary. However, taking this course would up-skill you to the point where you could apply for jobs where the starting salary is £42,000 because of the skills required, would you take the course? My answer would be yes, You’re risking 1% to make a potential gain of 20% or risk to reward of 1:20.
And what’s amazing about this risk and reward? You can risk taking several courses to increase your pay and you only need the 3rd/4th one to hit to get a great outcome. If you secure a £7,000 pay increase after paying for 4 courses that cost £1,400, that is a ridiculously great income.
My Life
How does this apply to my career and life at the moment? Well, the cost of inflation is crazy right now so I’m looking for a new role and get a pay rise, as we all should be. In this instance, I’ve been trying to break down the risk and reward of applying to new roles but also, making it a calculated risk.
My case is pretty different because I’ve already got experience so it’s just a case of applying for new roles but to calculate risk and reward, I need a tangible number to put this on. Because the only sacrifice is my time and prepping for all the interview stages, I probably attribute 0.25% risk to each application I put in. But the benefit of getting a new role means I could potentially see a salary increase of 34%. With this risk and reward, it means I could put in 100 applications, and if 99 reject me, but that ONE accepts me, the risk and reward pay off.
Of course, it still has to be calculated though. I’ve got 100 shots I can take so I need to make sure I calculate the risk and apply for the jobs I have the highest chance of succeeding in the applications with. Jobs in the same industry, close to my current role, and previous experience and projects that are suitable for the new role. If I don’t do these things, it’s just a waste of an application because the success rate will be far lower.
Until Next Time
Until next time! I have a few ideas for newsletters in mind so I’ll post them soon!