Investing vs. Gambling

About this Episode

In this engaging and insightful article, we delve into the conversation between Patrick Donohoe and Jennie Steed as they discuss the human need for uncertainty and risk. From thrilling childhood escapades to the realm of financial decision-making, this article explores how embracing uncertainty can spice up life and provide a foundation for financial success.

Key Takeaway Timeline

  • 01:07: Why are we naturally inclined to take risks?
  • 04:55: How risking capital puts everything at stake
  • 10:50: How to effectively visualize and reduce financial risks
  • 13:38: Why a strong foundation is crucial for risk-taking
  • 17:40: How embracing uncertainty leads to fulfillment

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01:07: Why are we naturally inclined to take risks?

Patrick Donohoe: So, a little story… I have two teenage daughters, and the oldest one is somewhat of a maverick. 2020 was challenging for everyone, especially for kids. They couldn’t see their friends. Things started opening up towards the end of 2020 and into 2021.

One night, my wife heard a noise outside our window. Our house has multiple floors. I’m a heavy sleeper, so she wakes me up, saying there’s someone outside. I rush to the front door, but there’s nothing there. She’s adamant she heard something, so we check on the kids. Hannah, our daughter, isn’t in her bed, and it’s 2:00 am in the morning.

I go outside again and see a car driving away. I grab my keys, dressed only in my underwear, and follow the car, even onto the highway. But when I catch up, my daughter isn’t in the car.

I returned home, and at that point, Hannah was walking up the driveway. She had sneaked out to meet her friend who lived down the street. I felt like an idiot, and I started getting upset with her. That’s when she reminded me that my own teenage adventures included stealing my grandparents’ car without a license.

The reason we’re sharing this story is that humans have a natural inclination towards risk and adventure. Whether it’s breaking into a public pool at night or sneaking out with friends, there’s an impulse to take risks and seek adventure, especially during puberty.

Jennie Steed: Absolutely. Many of us have countless memories of taking ridiculous risks. I remember a time when I decided to sneak out, even though my parents didn’t hear me. It was my first time, and I was sweating buckets, but it was freezing outside.

We waited for ages at a meetup spot with my brother, and it was so cold. Eventually, we gave up and went back home. The next morning, we discovered that the friends we were planning to meet had stolen their parents’ car and gotten into a lot of trouble. Those moments of risk and uncertainty are often exciting in our youth.

Patrick Donohoe: Yes, exactly. The need for risk and adventure is a fundamental part of being human. So, why are we telling these stories? Well, it’s because human beings are drawn to risk, adventure, and uncertainty. It’s an impulse that’s hardwired into us.

But here’s the catch. While these impulses are natural, they don’t always lead to the best outcomes, especially regarding money. We may not even realize that we’re trying to fulfill these needs, and we take unnecessary financial risks that can have significant unintended consequences.

Jennie Steed: That’s right. As we grow up, we often have access to capital, and that’s when we start fulfilling our need for uncertainty and risk by putting our money at stake. But this also puts everything else in our financial life at risk.

So the question is, can we find other ways to experience uncertainty and adventure without jeopardizing our financial security? The answer is yes, but it requires a conscious effort.

Patrick Donohoe: Absolutely. We must balance our need for adventure and uncertainty with responsible financial planning. It’s important to find ways to incorporate novelty and excitement into our lives without taking unnecessary risks with our money.

One way to do this is by building a strong financial foundation using strategies like the Perpetual Wealth Strategy and the Hierarchy Of Wealth. These strategies help you categorize your assets and visualize your wealth, allowing you to see where you might be taking too much risk and where you can make more informed financial decisions.

Jennie Steed: That’s a great point. Many people don’t realize that they lack a solid financial foundation. They assume that once they start making money, everything will fall into place. But that’s not always the case.

Building a strong financial foundation is crucial because it gives you the stability and security to explore other opportunities and take calculated risks without risking your entire financial future.

Patrick Donohoe: Exactly. Your financial foundation is like the root system of a tree. The stronger your roots, the more uncertainty and risk your financial tree can withstand. It allows you to pursue various ventures, knowing that your foundation will support you even if things don’t go as planned.

Jennie Steed: And as you grow and evolve throughout life, your definition of fulfillment may change. So, having that strong foundation ensures you can adapt and remodel your financial life to align with your evolving goals and needs.

Patrick Donohoe: So, the lesson for today is to embrace uncertainty and adventure in a responsible way. Understand that it’s a natural impulse, but have a strategy and a strong financial foundation in place. That way, you can fulfill your need for novelty and excitement without jeopardizing your financial security.

04:55: How risking capital puts everything at stake

Patrick Donohoe: One of the main things I learned from Bill, from Tony Robbins, when I was part of his platinum group for a couple of years, is his deep understanding of human behavior. He teaches about the six human needs, and one of the primary needs is the need for uncertainty and variety.

It’s a natural impulse; we seek adventure and risk. He has a saying that took me a while to grasp fully, “The quality of your life is in direct proportion to the amount of uncertainty you can comfortably live with.”

I realized that in uncertainty lies the spice of life—the excitement, adventure, adrenaline, and fun. When it comes to money, as you pointed out, Ryan, we often don’t realize this impulse exists. We end up taking unnecessary financial risks, leading to unintended consequences.

Jennie Steed: Absolutely. We create opportunities for risk and uncertainty when we’re young, like sneaking out, because that’s what we can access. As adults, we often have access to capital, and we fulfill our need for uncertainty by risking our capital. However, this puts everything else at risk.

We’ll continue to seek uncertainty and risk in some form, but we have a choice: do it with our money or find other ways to experience the exhilaration that could lead to more productivity in our lives. We tend to unconsciously choose to have this experience with our money because we don’t know any other way.

Patrick Donohoe: When you put your money at risk, you put many things at risk. You also highlighted an essential point-finding novelty and adventure in adult life can be challenging due to work and family responsibilities. Balancing these needs is crucial, and finding time for such experiences is vital.

I recently talked with someone who had fallen for various “get rich quick” schemes. He always sought financial freedom but realized that those pursuits often led to disappointment. I told him about my hobbies, like skydiving and racing go-karts, which fulfill my need for uncertainty without making foolish financial decisions.

It’s about strategically positioning your life so that you’re continually engaged in fulfilling your need for adventure. In business, especially, there’s a significant level of uncertainty, but that doesn’t mean you have to take undue risks with your hard-earned money.

Jennie Steed: Absolutely, and we do something fun in our family that costs nothing—five-minute dress-up. It’s a way to bring uncertainty and risk into our lives. Social status can be a significant risk, and caring about what others think can hinder us. So, we dress up in five minutes, wearing whatever we can find, even turning our outfits upside down or wearing Halloween masks.

We go on adventures, visit different stores, and stay in character the whole time. It’s exhilarating, and it’s a simple way to experience that feeling. Some may find it scary or decline, but for us, it’s a lot of fun.

Patrick Donohoe: In the context of what we’re discussing, these experiences enhance the quality of life. Sometimes, we don’t connect doing seemingly crazy things like this with an improved sense of fulfillment in life. Understanding and embracing these aspects can significantly enhance our overall quality of life.

10:50: How to effectively visualize and reduce financial risks

Patrick Donohoe: Back then, we didn’t delve into the details of human behavior as much as we do now, but those impulses have always existed. In my 2018 book, I introduced a tool called the Hierarchy of Wealth. It’s a visual model that categorizes your assets into four specific tiers, helping you understand the level of risk you’re taking with your wealth, both individually and as a whole.

In a previous episode on Cash Flow, Jenny and I discussed an online ecosystem we developed for our clients, which includes a tool called WealthView 360. Alongside it, we have the Hierarchy of Wealth tool. This allows you to categorize all your assets, visualize them tier by tier, and see your overall wealth picture. It helps you identify where you’re taking risks with your investments and whether there are alternative financial products or vehicles with similar or better returns and less risk.

It also prompts you to consider if you should increase your financial education to understand your investments better and have more control. This way, when there are losses or disruptions, you’ll know how to react and minimize the impact.

Jennie Steed: Absolutely. What I appreciate most is the recognition of the importance of a foundation. Many people we talk to don’t realize they lack a solid financial foundation. When they visually see this, it can have an emotional impact, making them realize they need to strengthen or even build a foundation.

People often assume that once everything else is in place, they can add a foundation. In reality, we help them build and fortify that foundation. As you gain more education and experience, you can take calculated risks, knowing your foundation is there to support you.

13:38: Why a strong foundation is crucial for risk-taking

Patrick Donohoe: We often use the metaphor of roots and a tree to explain the concept of building a strong financial foundation. What’s below the surface represents the root system, while what’s above it includes the tree trunk and branches. A robust root system allows the trunk and branches, symbolizing your financial endeavors, to withstand greater uncertainty and risk.

The level of uncertainty you can comfortably live with is directly tied to the strength of your financial foundation. With a solid foundation, you can confidently explore various opportunities, such as going on vacation or starting a business, without constantly worrying about your financial stability.

When you have a strong foundation, even if a venture doesn’t yield the expected results, you view it as a learning experience and move on to explore other paths. In our society, there are countless opportunities to express yourself and make money in unique ways, whether it’s through a YouTube channel, an Etsy store, or other creative endeavors. This aligns with the concept of self-actualization from Maslow’s hierarchy of needs, where you discover your uniqueness and contribute to the world.

Achieving financial independence is important, but what’s even more crucial to me is fulfillment. It’s about creating meaningful moments and experiences throughout your life.

Jennie Steed: Fulfillment is a dynamic aspect of life that evolves and changes over time. To adapt to these changes, it’s essential to maintain a strong foundation to remodel your financial life and everything above it, ensuring your family’s well-being throughout the process.

Patrick Donohoe: Absolutely. I admire the novelty and excitement you bring to your family, Jenny. We’ve known each other for over a decade, and I’ve witnessed how you embrace uncertainty, both the ups and downs. These experiences bring a profound energy to life, promoting growth, resilience, and the joy of trying new things.

While we don’t embark on such adventures primarily for the sake of creating stories, they often become the tales our children remember and share. These peak moments are a part of our ultimate legacy, perpetuating a sense of adventure and fulfillment within the family.

Jennie Steed: Yes, and this legacy continues as our children absorb the experiences and values they observe along the way. Growing up, I personally faced a lot of uncertainty and adversity. However, becoming a wealth strategist and experiencing financial transformation as a client and a professional has allowed me to guide my own family.

I coach them on financial decisions, offering insights and perspectives. Ultimately, they make their choices, but having access to information and understanding financial principles empowers them to navigate life’s uncertainties confidently.

17:40: How embracing uncertainty leads to fulfillment

Patrick Donohoe: I’ve had the privilege of witnessing your journey over the years, Jenny, and it’s clear that you’ve embraced the idea that life happens for you, not just to you. Your experiences are opportunities for growth, and you bring this perspective to benefit your clients, which is truly remarkable.

Jennie Steed: I absolutely love sharing and exchanging experiences with my clients. It adds richness and depth to life, and the creativity that emerges is incredible. Being a bit unconventional and thinking outside the box is something I thoroughly enjoy.

Patrick Donohoe: Today’s lesson is all about embracing uncertainty and risk. These elements add spice to life, but it’s crucial to approach them responsibly. While chasing get-rich-quick schemes or taking reckless investment risks may provide fleeting excitement, they often lead to setbacks.

Instead, it’s about recognizing the need for risk and uncertainty in your life, being aware of it, and channeling it into healthy areas. The goal is to take two steps forward and then two more without any steps back.

Jennie Steed: I couldn’t agree more. It’s been an amazing conversation.Patrick Donohoe: Thank you, Jenny, and thank you to everyone listening. We offer tools like the Wealth View 360 and the Hierarchy of Wealth in our online portal, both are accessible to our clients at no cost. If you are a client and don’t have access to our portal, you can register by clicking “Access Your Portal Account” above this transcript. If you are not a client and looking to learn more, you can get free personalized guidance by clicking “Schedule a free consultation” above this transcript.

About Patrick Donohoe

Patrick H. Donohoe IAR, AIF®, RFC®

Over two decades of experience in the financial services industry, Patrick has seen the challenges people face in managing cash flow, risk, and investment performance – especially for business owners, real estate investors, and entrepreneurs. The struggles lead to continuous uncertainty and unease, – negatively impacting the areas of life where they have the most significant impact.

At Paradigm Life, where Patrick serves as CEO, he leads the company mission of helping Clients overcome these challenges through proven, economically sound, and time-tested strategies. Since 2007, Paradigm Life has guided over 8,000 clients nationwide to new levels of financial independence, helping them create and follow a path to thrive personally and professionally.

Patrick’s journey into the financial industry was unique. Growing up in a middle-class area in central Connecticut, the child of two teachers, he wasn’t taught much about money, investing, or business. His interest in finance was sparked by studying Economics & Statistics formally and reading Rich Dad Poor Dad in 2002, which opened his eyes to the financial potential of all human beings.

Patrick’s first real taste of personal finance came during college, where he worked in a call center that provided debt consolidation strategies as an alternative to bankruptcy and, later, in the mortgage industry.

He founded Paradigm Life in 2007 and, like many during the 2008-2009 financial crisis, learned firsthand about the unpredictability of the business environment and economy. That period tested him but also shaped him. Amidst the struggle, he worked tirelessly, providing consultations and webinars to help people navigate the financial storm. In 2011, those efforts started to bear fruit, allowing him to expand his team and build a strong company culture.

This journey compelled Patrick to write “Heads I Win Tails You Lose – A Financial Strategy to Reignite the American Dream” in 2018. The book encapsulates his financial philosophy and the wealth strategies Paradigm Life uses with Clients, rooted in his career experiences. To date, the book has sold over 60,000 copies.

Patrick also co-hosts several podcasts with over 1,000 episodes combined.

As a veteran of the industry, Patrick gets the challenges Clients face. His personal and professional experiences have equipped him to guide others through the complexities of personal finance. While he is passionate about numbers and objective analysis, he strives to prioritize making financial theories accessible and practical for Clients without getting lost in the complexity.

On a personal note, Patrick has been happily married since 2003 and has three children. He’s a Utah Jazz fan, plays Ice Hockey, and loves spending time in the mountains with his friends and family.

About Jennie Steed

Jennie Steed, Wealth Strategist
I believe that people are capable of incredible things, if they have the proper systems and support they need. Every great vision is achieved one step at a time. I love being there every step of the way. I am at my best when I get to teach the principals of financial freedom and accountability as well as provide the support needed to help my clients achieve their goals. This is who I am.

Jennie specializes in assisting her clients to find a financial balance while creating their financial masterpiece – for both now and for the future. She is an entrepreneur. Prior to joining Paradigm Life, she worked in finance as a mortgage loan officer for 5 years. She also owned and operated an alarm installation and monitoring security business for over 10 years. Jennie is the mother of three children – each with three very different personalities – and has learned how to creatively adapt to each of their needs. With that experience, she loves to find creative ways to encourage clients and colleagues as well as family and friends to look outside of the box for possible solutions to problems. She has a unique ability to teach them how they can create their goals and dreams. To Jennie, the “Perpetual Wealth Strategy” is most definitely “out of the box” thinking.

A Wealth Maximization Account is the backbone of The Perpetual Wealth Strategy™