What’s The Downside?

Photo by Max Leveridge on Unsplash

It’s useful to develop the habit of asking this question before making a decision.

This will help you avoid making any potentially bad choices that you’ll come to regret. The choice would be even worse if the upside was small but the potential downside big.

Ask yourself, What’s the Downside?

If there are any major downsides, consider the probability of the downside and whether it’s acceptable for you.

Let’s run through some examples.

You’re at a bar alone and you meet a friendly stranger that offers you a drink (he has an extra glass of beer ready). The upside is that you get a free drink and a potentially nice conversation. The downside is that your drink might be spiked. If you consider the probability of the downside as anything above very unlikely, the upside is probably not worth it.

Now let’s say you’re thinking about investing in a business. The upside is that you can 30x your money. The downside is you lose your investment. You assess the probability of the downside to be 20%. The odds are in your favor and the upside makes the risk worth it. We can introduce another factor and say that the minimum investment required is $100,000 and that’s all of your life savings. Then the next question to consider is whether losing your life savings is an acceptable risk. If you need to use the money in the short term, say for your kid’s college or medical treatment, then it’s probably not an acceptable risk despite the odds being in your favor.

When making a decision, Ask yourself, What’s the Downside?