While you may have massive financial and money goals in your life, if you haven't you should get these sorted, it is likely that by pursuing these there will be a degree of risk you'll end up needing to take. Although risk itself is not necessarily a bad thing, it's important to be clear on the level of risk you're willing to take.
Why is the level of risk you're willing to take important?
Imagine the following 3 scenarios:
- You'd like to pay for your child's education costs and with the money you have saved up, you decide to invest in an up-and-coming technology stock that promises significant upside although does not have any proven track record
- There is an upcoming holiday coming up in a year and you decide to put some of the money you are planning to use into a blue-chip high yield stock that has a proven track record and has been around for over 50 years
- You're saving up for your retirement in 25 years and decide to put 80% of your current free cash-flow into cash at the bank, which earns a relatively low amount of interest
The above 3 situations vary differently highlighting a point that risk will be specific to you and your own comfort levels around taking risk. Key questions you should consider asking yourself about your investments are:
- What are the purpose of the funds you are investing?
- How long will it be before you require them back?
- What is the consequence of losing a large chunk or all of the money you have invested?
- What other future costs or expenses that you may not have accounted for you?
By considering the above questions before you start investing you'll be likely to address and avoid future concerns up front. Be clear though and speak to a professional before you start along your investment journey
What are your thoughts and approach towards risk management?
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