“Spend some, save some;” no matter how nominal the amount. It’s a concept that has stuck with me throughout the years, and one that I have certainly benefited from. As helpful as it has been, I think its missing one thing. “Spend some, save some, and invest some” that sounds pretty good to me. Why not allow your money to make you money. Investing is something that I feel is not done enough, at least not among most of the people that I know. I think many people have this misconception that you need to be rich to invest. Completely NOT true. The best thing about investing is that you can tailor your portfolio based on your personal needs and risk tolerance. What is risk tolerance? Most people are familiar with the phrase “no risk, no reward”. The more you are willing to invest the higher potential for earnings. The thing about this is that we all want a grand reward but aren’t willing to invest a grand amount of money. That’s because our risk tolerance doesn’t always match our dream investment outcomes. Investopedia defines it be “the degree of variability in investment returns that an individual is willing to withstand.” I came across a quick quiz that allowed me to assess my risk tolerance. Took me literally a minute. So once you’re done, we can do a quick review of the most appropriate investment types throughout the risk tolerance spectrum.
Now that you’ve completed that quick and easy assessment, let’s discuss which investments vehicles will make the most sense for you!
Low Risk Investor- Bonds are your best bet! A bond is “a debt investment in which an investor loans money to an entity (corporate or governmental) that borrows the funds for a defined period of time at a fixed interest rate.” Keep in mind that earnings will be little to none here. Mutual funds may also be a good option for you. A Mutual Fund is an investment vehicle that is made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets.”
Moderate Risk Investor- Mutual funds work for this investor as well. The moderate investor may however be more likely to invest funds that are made up of more stocks than bonds. The quiz confirmed that I fall in this category. My results went on to say, “Hybrid funds that contain both stocks and bonds would work. You want some stocks to keep you from falling behind in your returns, but you'll probably be comfortable only with the bluest of blue chips.” Described me to the T! I have to admit I’m a bit of an novice myself. Having only been in the market the past 3 years, I still have a bit to learn. As I take a more active role in my investing, I will share any tid bits that I come about. I can tell you now that I do have some diversification – variety of investment types, with different levels of associated risks- which makes sense for someone in the moderate realm.
High Risk Investor- This investor will be primarily invested in stock. However, they may also consider more complex investments such as Options-“the right to buy or sell a stock at a specific price”. This person may also parlay in more advance investing techniques like Hedging-“Making an investment to reduce the risk of adverse price movements in an asset.”
Regardless of your risk tolerance you always want to make sure you don’t have all of your eggs in one basket. Mix it up a little!
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