Money Management

10 Things to Do When Taking a Risk Backfires

September 6, 2022

All the investments you make and all the uncertain routes you take on your journey to achieve financial success involve some degree of risk. The risk level associated with each step usually correlates with the level of return you expect. The rationale behind this is simple; if you are willing to take on risky paths and lose money, you should be rewarded for your risks.

Some of the most aggressive investments have the potential to bring you higher returns, but they can lose value, even all their value, when exposed to market risks. And the most conservative ones have low returns but can expose you to the risk of not accomplishing your financial goals.

When these risks don't materialise, and they rebound adversely on you, you must know how to deal with them.

So what should you do when a risk you took doesn't pay off or, worse, backfires? How do you react, lift yourself and ensure you don't lose sight of the bigger goals you were chasing?

This article will explore ten things you can do when a risk backfires and how you can help get yourself up.

Take a Break

A break can help you create time to understand where it all went wrong and create time for you to accept what you've just gone through. Whether the risk you took was due to your miscalculations or was caused by market risks beyond your control, taking a break will help you avoid unnecessary emotional reactions that could sink you further.

You can take a break for as long as you want; after all, the break isn't to keep you away forever. If anything, it is supposed to help you come back stronger. You'll be able to create a plan to avoid exposing yourself to search risks in the future.

Move Past the Denial Stage

Denial is the first step of grief, but you must prevent yourself from wallowing in it for longer than you need to. A financial loss can cause you a variety of emotions at this stage, from shock, confusion, disbelief, stress, and guilt.

You should develop a strategy to move past the denial stage as fast as possible and accept the reality of the financial and emotional implications you have gone through.

The resilience you develop will help you bounce back, be more calculative with risks in the future, and thrive. Wallowing in denial might build fear in you that could be hard to overcome later and prevent you from taking risks that have the potential to improve your finances.

Go Back to the Drawing Board and Re-evaluate

What led to the risk to backfire? Sometimes you might find it hard to pinpoint where it all went wrong if you choose to move past it quickly. And this might blind you, making it impossible to notice such pitfalls in the future. Going back to the drawing board allows you to gain clarity and help you re-evaluate.

Write down everything that you could remember up to the point where it all went wrong and document your findings. Given that living through something like an investment failure might be difficult, you should find solace in the fact that you can use your documentation for future reference to ensure you avoid repeating your mistakes.

Don't Dwell on It

You might find yourself tempted to look for ways to recover the losses you have suffered or reverse a risk. And it's rightly okay to do that. Try to find out if there's a way to get back some of your initial investment. But don't dwell on that path.

Once you have found out that recovering your money or reversing the risk is impossible, count your losses and start taking steps to move on. Don't be tempted to spend more time and money to try and recover what's already lost. This will likely cause more loss and prevent you from taking advantage of other opportunities.

Take steps to move forward and explore other ways you can recover without inflicting more losses on yourself. If, for example, you took a risk to start a business and it fails, analyse different actions you can take first instead of digging into your savings to pump more money into a failed investment. Could closing the shop be cheaper? Choose the action that makes the most sense financially, not emotionally.

Learn from Your Mistakes

To quote the famous Winston Churchill quote, "success is not final, failure is not fatal: it is the courage to continue that counts." This saying is even more powerful after you have experienced failure following a risk you took. But that experience can help you take better risks in the future if you can derive useful lessons from your mistakes.

One important lesson you can learn after a risk backfires is your true risk tolerance, which is how much a person is willing to lose to achieve their objectives. If you have exaggerated your risk tolerance before, you can tell what your limits are and ensure you don't repeat the same mistakes in the future.

Once you understand what led to the mistakes and failures in the first place, you can create realistic plans and stay alert, which will help you make better decisions moving forward. If the mistakes you made were pooling all your investments in one vehicle, you'd know the importance of diversification and asset allocation.

Don't Let it Define You

When a risk backfires, you can develop an intense fear of taking more risks in the future; your risk attitude might change. You might find yourself being more risk averse and staying clear of taking any action that can improve your finances.

One thing you must remember is that avoiding risks also puts your finances at risk. For example, you are not immune from other market risks like inflation that have the potential to affect the purchasing power of your savings when you choose to avoid investing. Therefore, instead of letting investment failure define you, use it as fuel to move forward to ensure growth.

Don't Suppress or Hide your Loss

You might want to resort to hiding your losses after a risk you took backfires. This can be out of shame or to avoid judgements from the people around you. But when you bottle up all those emotions that come with losses, you might take all your frustration on the people around you. Hiding losses can also lead to bigger problems like career-related issues or your partner accusing you of financial infidelity.

Instead of suppressing your feelings and waiting for the ocean to erupt, you can choose to talk to people who might help you go through it, talk to individuals who have suffered losses like you and seek advice from them, or talk to the people closest to you.

Finally, if there's anyone who might have the right to know about the risk of failure, whether it's your spouse or a business partner, inform them early. They should hear from your mouth than find out on their own.

Seek Help from Professionals

When a risk backfires, it can leave you desperate, especially if the loss affects your financial standings or threatens your career. It can lead to severe stress and despair that causes you to resort to more financially draining strategies. You might find yourself taking emotional actions that are only self-destructive.

To avoid all this, you might need to seek professional help depending on what you are going through. You can get a financial advisor/planner to help you rebalance your portfolio, a career coach if you feel your career is at serious risk, or a mental health expert if the failure is causing you serious mental anguish.

Wherever the case is, a professional will help you get through it and help you avoid putting your finances at greater risk.

Avoid Blame Games

You might try to find someone to blame for your risk backfiring. This can be anyone from your financial advisor to a friend who encouraged you to take a risk. Unless you have legitimate claims against anyone, you should know that you should take full responsibility for your own decisions and excessive risk-taking.

Accept the failure and take it as a lesson not to blindly follow the masses for fear of missing out or take action to please others in the future. Next time before you take any risks like an investment, consider conducting proper background research, understanding all the risks associated with it, and only stake what you are willing to lose.

Take Steps to Move On

Bouncing Back from risk backfiring might not mean recovering your money or assets, but it does mean learning how to survive and thrive in the most difficult time. But for this to happen, you must commit to moving forward after you've counted your losses.

Whether you need to look for a new job after a career risk backfired or need to start fresh after losing all your savings, you need to take action. Pitying yourself or being too proud will only waste your time, slow you down and prevent you from reaching your financial goals.

WRAPPING UP

Taking risks always leads to either two ends; you earn rewards or suffer losses. As you prepare to take risks to help you achieve your financial goals, don't be over-excited about the possible returns that you forget to have a game plan for when things take a different turn.

Always assess the risks you want to take from all angles. Create strategies to help you avoid losses or help you mitigate losses before you take any uncertain path. This will ensure you don't expose your finances or career to more than you are willing to lose.

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Farah Nurow is an experienced Content Writer who enjoys writing creative and educative articles meant to provoke readers' thoughts. He loves sunny weather and thick books. You can connect with him on LinkedIn.