James Holzhauer has become one of the most dominant "Jeopardy!" contestants in the show's history. He has the second longest winning streak and the second highest winnings in regular play.
Like any successful quiz show competitor, he knows his trivia. Holzhauer is handy with a buzzer as well.
But his real genius lies in how he manages risk. Holzhauer's day job, if you can call it that, is professional sports better. (Learn more about how gamblers think about money.)
In interviews, Holzhauer has talked about how gambling has made him comfortable with taking big risks early in the game. Unlike many players, Holzhauer jumps right to the $1,000 answers, the most valuable — and most difficult — clues in the game.
He also places huge bets on the "Daily Double," a feature of the game that allows players to wager as much as they want on an answer. Taking big risks early leaves him enough time to make up for the rare wrong answer.
This strategy allows Holzhauer to build up huge leads, and also leaves less valuable answers on the board. As a result, Holzhauer faces less risk of losing big as the game goes on.
This strategy of taking big risks early holds lessons for our own personal finances.
How to manage risk with your own money
Holzhauer's strategy has parallels with how people should invest for retirement. Early on in your life, you have the luxury of taking bigger risks.
Front-loading your big bets early on in life is smart because you have more time to catch up in the event of any losses. This is why many financial advisers recommend that investors put most of their money in stocks in their 20s.
Stocks have a greater risk of losing their value as the market swings up and down, but they can also provide the greatest rewards, much like those difficult $1,000 answers on "Jeopardy!". As you approach retirement, it's a good idea to slowly transition your money into less risky investments like bonds. This allows you protect the nest egg you've built up over decades and ensure that you can hold onto it regardless of what happens in the market.
The idea of front-loading risk is accepted as gospel in the personal finance world, but on "Jeopardy!" it's kind of a revolution. Most players start with the easiest, least valuable questions and work their way up to the $1,000 clues.
Now that Holzhauer has upended this strategy, you can see the advantages of taking risks early. When he plays, Holzhauer builds up such big leads that none of the other players have any chance of catching up.
As the game nears its end, he's almost guaranteed a win as he reduces the size of his bets. We'll see if any other players start applying these retirement basics to try to unseat Holzhauer.
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Image: suzanne clements