Rob Wood, Independent Financial Planner looks at the risks we take in business and at home.
A tourist in Canada recently unlocked a hotel safe which had sat unopened in a small museum for over forty years. Over that time the museum staff had tried to open it many times: bringing in expert locksmiths; asking local people who had worked there for their advice, and challenging visitors to have a go. The tourist cracked open the safe on his first try. After seeing the numbers on the dial ran from 0 to 60 he used the combination of 20-40-60 going in the typical combination lock rotation of three times (to the number 20) clockwise, twice anti-clockwise to 40 and once clockwise to number 60. The odds of that happening, according to the University of Toronto, are 1 in 216,000. Had the combination lock worked with a leeway of three digits, which is the case with some locks, then the chances of unlocking it first time would be reduced to 1 in 8,000.
Calculating the odds of risks and opportunities is something that we all do, consciously or subconsciously, every day. The chances of winning the National Lottery with one ticket are currently 45,057,474, to 1, and winning the EuroMillions with one ticket gives you odds of 139,838,160 to 1. Conversely, and something that you probably think about a bit less often, the odds of being struck by lightning are, according to the Royal Society for the Prevention of Accidents, 300,000 to 1, and the British Medical Journal suggests that the annual risk of needing emergency treatment after being injured by a can, bottle or jar is 100 to 1.
It’s impossible to ban risk from our everyday lives, and many would say that it’s foolish to try to do so. For example, it could be argued that children who aren’t encouraged to climb trees and play in natural spaces like woods may suffer later in life because they haven’t been able to develop confidence in their physical capabilities. In business, many entrepreneurs succeeded (amongst other factors) because they risked failure: Henry Ford’s first automobile business went bankrupt in 1901 before he went on to revolutionise car production with the Model T Ford, and James Dyson spent fifteen years and all of his savings building over 5,000 prototypes of his bagless vacuum cleaner before he found the one that worked to his satisfaction.
Much of the work of Scrutton Bland’s financial advisers involves working with the odds, or risks, of certain things occurring. In the case of our Independent Financial Adviser teams, they will work with our clients to evaluate their attitude to risk, and having assessed that will help them to place their savings into carefully selected locations such as funds, pensions and trusts, where the assets have a calculated chance of increasing the value of the client’s portfolio. Of course there are risks involved in these transactions, and the value of an investment can go down as well as up, but by using an Independent Professional Adviser from a firm which has been awarded Chartered status from the Chartered Insurance Institute (CII), a client can be reassured that they are working with impartial and highly trained advisers, who aim to achieve growth in the long term for their clients, as their lives progress.
But going back to the Canadian tourist and his clever safecracking – what was in the safe? An old pay sheet and part of a restaurant order dating from 1978. I wonder if he had better luck when he next bought a lottery ticket.