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Just how much risk am I ready for?

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Q: I am wondering about to which oven a hundred-thousand-dollar glob of dough should be directed. Risk taking is my passion, but not unnecessary risk taking. When I was younger I used to like to ride motorcycles, but I never popped wheelies or jumped cars.  I don't mind even going for broke in an attempt to double up; I am not one to stuff money into a savings account, not because I am against saving, but because there is such a limited pseudo-gain that does not keep up with the effects of inflation and devaluation of currency. Because I live near the Canadian border, I have often wondered if buying Canadian currency or maples would be the ticket. To boil it down, I am in a position to "gamble" with about half of the $100k and play it safe with the other half.  What might your suggestion be?  — Gail, Juneau, Ala.

A: There’s no menu of “safe” or “risky” investments you can choose from; think of it as one continuous scale that starts out white (say Treasury bonds) and gradually gets grayer (small cap stocks, then large cap) and goes to black (a category that might include craps tables, dot-com IPOS and high-octane futures trading strategies.)

But your biker days taught you two important lessons about risk. First, you knew enough about riding a motorcycle to understand just how dangerous it is to pop wheelies and jump cars. And second, you learned about your own tolerance for risk when weighed against certain rewards. The joy of heading out on a warm spring day and flying down a mountain road without a helmet has to be balanced against the risk of a hitting a sandy patch on a blind corner and slamming into a truck that may have strayed out of its lane.

I’m guessing you didn’t try that mountain road outing the first day you got on a bike. The same thing is true about investing. Plunking down a glob of dough — no matter how big — in an investment that you don’t understand is like accepting the risk of that mountain ride without understanding the rewards. So handing your money over to a broker — or, say, taking advice from some guy you’ve never met who writes this column on the Internet — is an “unnecessary risk.”

Fortunately, learning about investments is a lot easier (and safer) than learning about motorcycles. And knowing your risk tolerance in the seat of a Harley is not the same as understanding your tolerance for financial risk. 

While there’s nothing wrong with gambling, you wouldn’t take your $100,000 glob of dough to Vegas without at least playing a few practice hands of blackjack with friends. So study up on investments that you’re curious about. Ask around. Surf the Web. Read the Wall Street Journal. Don’t part with your money until you’re satisfied you’ve gotten the whole story and feel you’re ready to proceed. When that time comes, listen to anything a broker tells you very carefully, and ask any questions you have. A lot of money has been lost by people who didn’t ask the right questions because they were afraid it might make them look stupid. Here at the Answer Desk, we’ve long believed in the adage that there are no stupid questions, only stupid answers.

In the end, the ride will be much more fun that just handing your money over to someone and waiting to see if the gamble pays off. Once you get started, you may even experience the same thrill of your biking days when you find a beaten-up, overlooked stock that the “pros” have passed over, buy it, and watch it double in a year.

(OK, maybe it won’t compare with taking a BSA 650 for a spin on that first warm spring day up to the mountains. But it can come close.)