The following is a guest post. If you would like to submit a guest post, please contact me.
There are an endless amount of investment vehicles and assets available to investors today and it can be difficult to pick the ones that best suit your needs. If you are considering investing for the first time then the first thing you need to do is assess your risk appetite. Once you have managed this, you are ready to do some research and put together your own portfolio of investments.
What is risk appetite?
Also known as risk tolerance, risk appetite refers to your desire and ability to take on financial risk. The financial markets are in constant flux and risk is essential for profits and losses to be made. Risk can be measured in terms of the likelihood of the risk occurring and also its impact. The general rule of thumb is the higher the risk you take on, the greater the potential reward.
How much risk should I take on?
To answer this question, you will need to look at more than just your personal attitude to risk. The most important factor is your personal circumstances, in particular your proximity to retirement.
If you are nearing retirement then you should hold mainly low risk investments to ensure that you don’t lose money that you may need when you stop working. If you are holding a high risk asset that is performing poorly then you may not have much time to try and recoup these losses.
If you are further from retirement, or you have money free to invest, it would be wise to use your capital for higher risk investments. This is because you have the chance of realizing a greater profit and more time to recoup any losses before reaching retirement age.
The nature of financial markets means that they constantly fluctuate – a successful investor will assess the risk and use these fluctuations to their advantage. Professional asset managers will use risk models such as those provided by http://www.sungard.com/apt/ to asses the risk attaching to their portfolios. Continue reading
What is a habit? According to Wikipedia, a habit is a routine of behavior that is repeated regularly and tends to occur subconsciously. They also add that old habits are hard to break, and new habits are hard to form because behavioral patterns are imprinted on our neural pathways. Before your eyes glaze over at the thought of neurology, let’s take a look to determine if we have any habits. If we do, are they causing problems? Quitting bad habits can be a sure way to save money, and it can also improve your quality of life.
Good vs Bad Habits
As an adult, we likely have habits that are so common that we don’t put much thought into them. If you get up an hour early to exercise every morning, or always put money into your savings account as soon as you get paid, those are great habits.
If you can’t get through a day without cigarettes, a stop at the local bar, or buying a lottery ticket, it might be a good idea to examine those behaviors or potential “bad” habits to see if they are derailing your long term goals.
Financial Impact of Bad Habits
Some common statistics about habits:
- Americans spend about $44 billion on tobacco products each year. If you pay $5/pack and smoke two packs a day, that’s $3650 per year!
- Americans spend about $50 billion on alcohol annually, and the cost of a DUI in the US is around $10,000 in fines, court costs, and mandatory classes.
- The soda industry in the US brings in around $76 billion each year, and obesity related health costs topped $147 billion dollars in 2008.
- Excessive alcohol consumption (more than 4 drinks for women and 5 for men per occasion) cost the US economy $226.5 billion in 2006. 72% of that was in loss of workplace productivity. 11% was in health care costs. Continue reading
I had blood work done at the spring health fair recently, and I got my results this week. My total cholesterol and triglycerides are a little high, just over 200. My good/bad cholesterol ratio is good, but it’s all creeping up a little. I rarely eat red meat or other high cholesterol foods, and I work out almost every day, but I have really bad genetics for cardiovascular issues. I also have been snacking too much, and I often finish my daughter’s candy. So, this week, I went back on a low carb eating plan. Jim and I did it once before when he had put on some weight after an injury. We felt great, and looked awesome, then I got pregnant. Seven years later, we eat all the carbs we want, and now my cholesterol is inching up.
I’m not going whole hog this time, as I won’t cut out fruit. I’m also going to allow one piece of whole grain bread per day if I want, but pasta, chips, sugar, and other types of bread have gone bye-bye. It’s been five days, and I would be lying if I said I wasn’t craving pretzels, but I feel great, and I can feel my blood flowing better already.
We finalized some summer travel plans this week. My daughter and I will be heading to Kentucky next Friday, the day after school is out. It worked out to visit my family over Memorial weekend. I’m looking forward to seeing everyone. Jim and I get to take a kid free trip at the end of June for a conference I’m attending in San Diego. My mother-in-law is coming to babysit, and I couldn’t be more excited. We got tickets to see Train. While, it’s not Pearl Jam, I do love live music, and it’s been a while. Our big family trip to Seattle and Portland will be in July, so it will be a busy summer. I love not having to work all the time! Continue reading
We had a pretty good year at work in 2012, which is great. When you have a business, you want to make money. However, that also means a bigger tax bill. Because I’m not a fan of handing over money, I’m always on the lookout for legal ways to minimize taxes. I’d already maxed out my employer retirement plan. I put quite a bit into my HSA. It seems like I’ve already done several of the great suggestions Krantcents recently recommended. What else could I do?
My accountant suggested that we hire my daughter. Legally, you can hire kids when they are 7 years old to do basic tasks like filing or cleaning up. My daughter was only five. He told me to set up a photo shoot and use her pictures for advertising purposes. I could then pay her as a model. He said to think of child actors and models in Hollywood and how much they were paid for services. It was perfectly legal, and he said he would go to bat on that any day. Good enough for me. Continue reading
This is a guest post from Troy at The Financial Economist. If you’d like to guest post, please contact me.
Yes, you did read the title correctly. In order to make profitable investments, you do not need to predict the future. I understand that at this point, what I’m saying doesn’t make much sense. Let me elaborate.
Most investors are accustomed to predicting the future of the stock market – where will it be in the next 3 months, 6 months, 1 year, etc. They do “research” online, and come up with all these predictions backed up with fancy data. However, I prefer to invest differently.
I’m not a very smart guy – I literally spent a year preparing for my SAT’s, just to get a meager 1490 (considering the effort v. reward ratio, my score was disappointing). Hence, my brainpower (or lack of) doesn’t let me predict the future like all those Harvard MBA analysts on Wall Street can. My investment style is simple and straightforward: instead of predicting what the economy will be like in the next 3 months or 6 months, I just recognize the fundamentals when they appear. Now you’re probably asking “How does simply recognizing reality give you an edge? You’re not ahead of the curve at all!” Continue reading