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StonebridgeFOCUS | What Houdini Can Teach Us About Risk

As far as big risk takers go, Harry Houdini is on the short list of the world’s most daring. The Hungarian-born escape artist is well known for his tremendous stunts and feats of endurance all throughout the early 1900s. Widely considered to be Houdini's greatest trick, was the Belly of the Whale escape in 1911.

While performing in Boston, Houdini was challenged to escape from the belly of a whale by local businessmen. After 15 minutes of being shackled and sewn up in a beached whale carcass, Houdini emerged with a grin on his face. Unbeknownst to the spectators, Houdini nearly died from the arsenic fumes produced by the chemical that embalmed the whale carcass. It would probably surprise you to learn that Houdini's death was the result of an unexpected gut punch.

 

One of Houdini's famous tricks was that he claimed he could absorb any blow. While visiting with some students from McGill University on October 22nd, 1926, one of them decided to challenge his claim. Without notice, a student landed several forceful blows to the escape artists' abdomen before he could brace for impact. Houdini would die about a week later from complications due to a ruptured appendix. Often times, the risk is most dangerous when it is unexpected.
Risk is a complicated subject and most people naturally gravitate to one of two camps. There is camp A, who view risk as a means of achieving a reward, and camp B, who view risk as something to be avoided at all costs. There is no right or wrong answer, merely a perspective, which is subjective, and driven based on your own life experiences.

Determining the risk factor of something is largely based on the preparedness of the recipient. Houdini's trickery and sleight-of-hand routines, while incredibly dangerous, presented less risk to him, than if I were to try them myself. Houdini's tireless practice provided some measure of insulation to the risks posed. A big risk that can be seen on the horizon and prepared for is something that can be handled with relative ease. It's the small risk that emerges out of nowhere that wreaks havoc.

Navigating risks is one of the key components of goals-based wealth management and financial planning. The most successful outcomes come from well-defined, measurable goals where strategies are aligned with appropriate risk. When evaluating risk and how that impacts client portfolios and underlying strategies, it's critical to examine three types of risk:

  1. Risk Appetite | Your willingness to take risk.
  2. Risk Capacity | The maximum level of risk that can be taken without catastrophic setbacks.
  3. Risk Required | The level of risk that is needed to meet a certain outcome or achieve a particular goal.


Taking on unnecessary risk to achieve your goals can be just as derailing as an unexpected life event. While risk can never be 100% eliminated, it should always be expected. Our goals-based approach is designed to create alignment between risk, your goals, and strategies designed to support them, enabling greater confidence and peace of mind.

As former Wall Street Journal columnist Morgan Housel puts it, "Risk is what you don’t see." Harry Houdini can attest to that. At Stonebridge, we aim to equip you with the knowledge and confidence to be a fearless investor, and provide a goals-based framework when facing risky conditions or uncertainties.

Best,
Tyler Martin, CFP®

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