Know Your Limit, Risk Tolerance, And When To Stop Gambling

You should know your limit when you are gambling. How much can you afford to lose? When I went to Las Vegas, I took $500 out of the bank in cash, and that was my gambling money. That is all I wanted to lose. That was my limit. I would not go back to the ATM machine, and I would not go back into my wallet for more money. I left my checkbook and credit cards at home as well.

It takes discipline to know your limits. You can get swept up on the excitement and thrill of receiving money that you did not earn. But, the game is rigged against you. And, it is in your best interest to realize this going into the game. The mistake that a lot of people make is that they fail to realize that they are going to lose their money. They are not losing their money per se but actually paying the casino for the thrill. It is no different than riding Space Mountain at Disney World. It is the same thrill, but it is a different payment structure and time requirement.

In investing, it is important to understand your limits and your risk tolerance. How much can you stomach to lose in your investments? In the past, most investors fibbed to their financial planners and said that they could take a onetime 30% correction in the stock market because they were long term investors. 2008 proved most investors to be less tolerant to losses than they thought. Many investors fled stocks and mutual funds in record numbers at the worst possible moment when stocks were at their lowest point.

The hardest part is knowing yourself whether it is when you are gambling in Las Vegas or investing in the stock market. You have to know how much you can really stand to lose in order to adequately invest your money. What is the right split between stocks and bonds for your own situation? Everyone’s situation is different and everyone’s risk appetite is different as well. Now is the perfect time since the worst of the recession seems to be behind us to reevaluate your own risk tolerance and asset allocations. How well are you diversified? Do you need to scale back the risks you are taking in your investment portfolio? Can you stand another drop in the stock market or are you gun shy now? Know your limits going into the game, and do not get blinded by greed.

This is the fifth post of a seven part series of what Las Vegas can teach us all about personal finance. Check out the others in the series below…

Post #1 – Invest In What You Know
Post #2 – You Need Perseverance
Post #3 – Know The Rules Before You Start
Post #4 – Do Not Watch Your Bankroll (The Market)
Post #5 – Know When To Stop
Post #6 – Do Not Gamble More Than You Can Lose
Post #7 – Know When You Are In Over Your Head

Just to be clear….in no way am I advocating gambling. If you think that you may have a gambling problem, you should find help as soon as you can. There is help available. You can find help andresources at the Gambler’s Anonymous website, the National Council on Problem Gambling, and the National Center of Responsible Gaming.