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How to win with higher investment risk
If your money isn’t simply sitting in your bank account, then you’re trying to make it grow. This involves some level of risk. The amount of risk you are comfortable with has a big impact on how much money you can make through investing.
Usually, people are concerned only with losing money. But consider the long-term impact on your financial future from always achieving mediocre results. Higher returns will come with higher risk. How can you handle this?
Some people are very conservative investors, approaching the market like one would a wild beast: cautiously and carefully. Always fearing that the tiger in front of them could suddenly attack and destroy everything.
Others love the thrill of investing. Their risk tolerance is so high, they are inclined to really grab that tiger by the tail and swing it around, just to see what might happen next.
Your level of comfort with risk will greatly affect your ability to profit from investing. Risk conveys the possibility of financial loss. Sometimes the loss is minimal. At other times it’s big enough to cause personal and financial hardship. Remember, the loss is only real if you actually sell the investment – give it time to recover.
Or will it? You might simply fear that it could. Your mindset is a key factor. You can teach yourself to tolerate much higher risk and reap greater investment rewards. It all depends on how you view that tiger.
Think for the long term
If you are a conservative investor, but want a very comfortable retirement, then something will have to change. Risk management in personal financial planning includes assessing your long-term goals.
The longer the time in which you can stay invested, the higher the probability of good returns. This means that, when you are younger, you can tolerate more risk. Time is on your side. Someone who’s aged 30 has at least two decades in which to pursue higher levels of risk compared to someone aged 60.
You need to gauge what makes sense to your current life situation, and maybe push yourself a bit. Find a way to raise your risk without robbing yourself of sleep.
Create room to risk
You want to develop a higher-risk investment plan, but you know that tiger can sometimes act unexpectedly. You can handle it by gradually teaching yourself what to expect.
Because wealth is not created from playing it safe. The only way to fully profit from your personal finances is by taking carefully planned, deliberate risks with a small portion of your investments.
Talk to your FORTAX Financial Advisor about what % of your portfolio makes sense for you to be able to add one or two higher risk investments into your portfolio. Make them just big enough to test your confidence. Persuade yourself to play for meaningful stakes.
As those high risk investments start paying off, it will raise your confidence. Reinvest the returns into other high risk investments and see what happens. Many so-called risky investments will fluctuate wildly at first. Don’t obsessively track the price of your asset. Set a date and a sell target for that investment – both top end and bottom end price targets.
Sometimes you will lose; but don’t lose the lesson. Learn what happened and then choose differently next time. Develop your ability to spot shrewd investments that will bring you satisfying returns.
Before you begin, however, ensure you have a three- to six-month emergency fund in place. Always ensure you can meet your living expenses. This will create a financial cushion. You will meet the normal market fluctuations with more confidence when you know that you’ve protected your lifestyle.
Tame the tiger and raise your investment risk level. Your FORTAX Financial Advisor can support you in doing this.