Investment, Risk and Reward

Investment, Risk and Reward. How does what you’re investing compare to what you stand to gain…or lose?

How Does What You’re Investing Compare to What You Stand to Gain…or Lose?

Throughout our lives we encounter hundreds if not thousands of situations where we must make a choice between how much we are prepared to give up to get something we want. Sometimes the choice is as clear and simple as deciding if it is worth parting with few dollars for a lottery ticket while other times the choice may be more complicated, such as making a decision to part with thousands of dollars on a financial investment.

The common thread in both these situations is that the decision involves a certain amount of: investment, or spending of resources – risk, or exposure to the chance of loss – and reward, or something of value given or earned in return for a service, hardship or in this case, financial investment.

In considering the investment, risk and reward factors of the two examples given here, it is obvious as to which one is the wisest choice – isn’t it? Which one represents the best choice for you? The lottery ticket requires very little investment and carries a high risk of loss, but the possible return on investment is astronomical in comparison. On the other hand, spending thousands on a financial venture requires more investment and although the potential return is not likely to be as lucrative as the lottery ticket could be, the chances of actually realizing some kind of reward is more likely.

Which of these two scenarios makes the most sense depends on who is making the decision. The process of quantifying risk and reward in terms of investment is a matter of human perception and tolerance and wherever humans are involved, a plethora of intangible factors come into play. While some may look at the purchase of a lottery ticket as an acceptable risk simply because the potential loss is low, others may look upon the almost certain loss of even a few dollars as unacceptable regardless of the potential gain. Likewise, some people may look upon investing thousands into something where anything but a guaranteed and significant return as unacceptable.

Regardless of which decision you think you might make here, both scenarios are pretty straightforward inasmuch as they each involve making a decision based on paying out money for the chance of making more money. Although the possible consequences involved in each decision are significant in that they could be incredibly beneficial or disastrous to someone’s life, the investor would remain alive regardless of the respective outcomes.

But what about the decisions forklift operators make that could have far more profound effects on their lives not only benefiting, but continuing? Consider an operator faced with the decision of whether to place wheel chocks under the tires of a highway trailer before entering it with a forklift. Do you think he or she would or should use the same thought process in determining risk vs. reward in terms of the required investment as they did with the lottery ticket? Let’s break it down:

Decision: Buy a Lottery Ticket
Investment: $2.00
Risk: Extremely high risk of losing the $2.00
Reward: Millions of dollars

Decision: Set Wheel Chocks
Investment: A few minutes of time
Risk: Quality of life or life itself
Reward: A few minutes of time

It is reasonable to conclude that any person faced with this decision that took the time to consider the factors of investment, risk and reward would make the right decision, being that the investment of a few minutes of time in order to avoid the risk of losing one’s life for the reward of saving a few minutes of time is an investment worth making. However, a critical step that every operator must take is to actually take the time to consider these factors of investment, risk and reward and how they all relate to their personal safety and the safety of others.

There is no way anybody would part with even two dollars for a lottery ticket if they did not believe on some level that they could actually win, even at mind boggling odds against. However, why is it that those same people that buy lottery tickets and happen to operate forklifts are willing to bet their lives or well-being on the belief that they could not come to any harm from not setting wheel chocks under a trailer, and at much better odds than winning a lottery? The logic just doesn’t add up.

The scenario above conveys the concept of risk assessment. Where operating a forklift is involved the risk factors relate to the life and limb of the operator and everyone nearby. With one’s very life in the balance, there is absolutely no possible reward that justifies that risk.

Just my two bucks.

Rob Vetter
Director of Training
IVES Training Group

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