Risk-taking is exciting and exotic. The reality, it seems is you have to take a gamble now and then to get ahead in life. Without risk, the budget will stay the same and your lifestyle won’t change.
In truth, “risk” is another word for threat. By gambling with the money you have, you’re in danger of transforming your life for the worse. Anyone who has kids and a husband will shudder at the thought.
The best intentions don’t mean squat if there are no resources for food and the essentials. If the above isn’t proof enough, below are four more reasons not to take risks with your money.
And this isn’t only a reference to portfolio diversification. Yes, a wide range of investments will reduce the chances of losing money, but you can cut out the middleman altogether. It’s called a rich uncles investment and it’s a clever way of using real estate to make money. Rather than take a chance of tenants who may not pay up, your money is on the companies that own the property. Let’s face it – the odds are high they will turn a profit. As a result, you’ll get a cut without any of the risky legwork.
The Pareto Principle
Also known as the 80/20 law, this is a theory which states 80% of the gains come from 20% of the effort. And, it’s right because you can see it in everything you do, from home life to your career. Regarding money, almost eight-tenths of it comes from one-fifth of your investment options. Once you realize this, there is no reason to take a gamble because the law of averages is in your favor. As long as you make a few solid decisions (not risky), then they will pay out big in the long-term. Or, they will recoup a steady ROI. Either way, it’s better to turn a profit than lose cash.
In your twenties, there are chances you have to take. Well, you don’t have to do anything, but it makes sense when you think about the payout compared to the risk. Plus, there’s plenty of time to recover as your earning potential is still very high. Unfortunately, you may not be a spring chicken any longer. What this means is every penny counts because it’s harder to recoup losses in middle age. When you think about the energy needed to make money in your forties and fifties, the risks seem less appealing. However there are ways you can still make money in later years to maximize your income at retirement-age.
Regardless of all the above, the experts don’t agree with risk. Sure, they take calculated gambles now and again, yet most of their choices are informed. Buffett himself suggests beginners should opt for reputable stocks as opposed to the rest. Why? It’s because they will payout (low risk) and you can accumulate money over time (high reward). As long as you’re patient, there is more than one way to skin a cat and boost your lifestyle.
Do you take risks with your money?
Where do you stand? Are you a run-of-the-mill type or person or a risk-taker?