Investing is a risky business. Markets go up and down all of the time. In the last few months it’s been volatile. How have your risky investments performed? Has it been stressful? Gut-wrenching? Heart rate increasing?
Investment Selection
When it comes to selecting investments, how much risk do you really need to take? What are you trying to achieve with your investments? Many people think about “making as much money as possible.” Well, that’s probably a bit too optimistic and it’s quite risky.
Instead, what if you had a number in mind? For example, let’s say you want to invest $10,000 and have $20,000 in 10 years. Doubling your money over this timeframe is a reasonable outcome as long as you select a robust investment portfolio, manage your taxes, and don’t make rash decisions during turbulent market times.
Appropriate Risk
When selecting a portfolio, the risk must be within your comfort level. Sometimes there is a bit of a disconnect between someone’s perceived risk and what it actually is.
When the markets were crashing a few weeks ago how did you feel? How often did you look at your investment portfolio? What did you decide to do?
As long as you are taking appropriate risk, then you should be fine. When you take on inappropriate risk, i.e., too much risk or a risky business, that’s when you cause yourself a lot of stress.
Savings Rate
Investing is important but a more powerful “investment” is your savings rate. The more you save, the more you have. As you appropriately invest more and more savings year after year, it grows, and you can have your money serve you. There’s no need to “swing for the fences” and take on inappropriate and risky investments.
Finding the next Bitcoin, Nvidia, or Google is nearly impossible to do. If you do find the next wonderful investment, that’s absolutely incredible! However, the odds of this happening are very low so it’s best to stick with what may appear to be a boring and proven strategy.