Skip to main content

taking risk, when?

It has always been said that in order to achieve higher returns on your investments, you need to take bigger risks. But a better question would be, when should I take risks? and the answer is: when you can afford to. Its ironic how poor people spend a significant part of their income on buying lottery tickets or gambling when they have so much to lose. If someone steals 500 pesos from your wallet and you can't sleep at night because of it, then you are in a financial position where you cannot afford to lose such an amount. So why would you spend 500 on lotto or gambling or on a risky business. On the other hand, if someone runs away with 100,000 of your money and it doesn't affect you emotionally, then you are in a financial position to spend 100,000 on risky investment because you can afford to lose the money. If you start from zero, then have an emergency fund first, about 6 months worth of income stashed safely in a savings account. This money is relatively safe since thieves can't steal it and it is insured anyway. Then you start accumulating investments, starting from the least risky to the most risky. Maybe you begin with cash investments, then to bonds, then to real estate, then to mutual funds, then to the stock market, then to a small business, then to forex, then to hedge funds and so on. You can afford to take more risks as your net worth increases simply because you can now afford to lose money in case an investment fails. But if it performs well and gives you very high returns, then you become even richer. Such is the cycle of wealth and the prime reason why the rich get richer. On the other hand, most of the poor get poorer because they invest what little they have on risky investments, the worst of which is gambling it away, so they never even start to accumulate wealth.

Comments

Popular posts from this blog

do not invest in Philippine pre-selling condos

I would rather shoot myself in the head than invest in pre-selling condos in the Philippines. My brother and I were interested on getting a condo unit not really as an investment but as a vacation home. However, when I read a contract to sell from one of the Philippines' top developers, I was shocked at how skewed it is on the developer's favor. There is very little protection, if any, on the buyer's side. I think you would have to be either really stupid or overly trusting to sign one of those contracts. The first issue I had was that they require the full post dated checks even before providing the contract to sell. What the hell? They should give the CTS when the buyer has paid 10% downpayment. Next, if they failed to deliver the unit as scheduled, there is no compensation to the buyer. They can practically construct the condo as slow as they can. Then they are also free to alter the floorplan as they please. So if you expect 10 units per floor, you might be surprised t…

a financial mistake most business owners make

What could offer the biggest potential returns of your investment? A profitable business. It can turn P1000 into millions but it can also turn into 000. Putting some money into a business is a must for any investor. Aside from the possibility of raking in profits, having a business actually helps you understand investments better. To quote Warren Buffett, "I am a better investor because I am a businessman and a better businessman because I am an investor". When it comes to learning about finance, running a business is the best teacher. We also need to apply investing principles in our business and what I would like to emphasize is the concept of diversification. A financial mistake most business owners make is the lack of diversification. This is especially true to small business owners. Let us illustrate with the typical lechon manok business. A young entrepreneur decides to start a lechon manok stall. He has great tasting chicken, has good location and people buy it. Needl…

from little things, big things grow

Most of us know this is true with investing but it takes discipline and a lot of patience to see this through. From little things, big things grow.  As investors, we need to realize that small amounts do matter and nothing should go to waste. We see pocket change, but the real value of those coins is many times over if it were invested and given time to grow.Yes, a few coins would not buy you much now but if invested well, it can grow to such that it can actually buy more in the future than what it can today. So if you see a coin, pick it up. It may only buy a piece of candy now but if invested well, it could pay for a decent meal 30 years later. Happy investing!