Basics of investing – risk for reward

In 2005, people spent 125% of what they did. They spent money they had not yet earned, so they accumulated debt and paid interest on that debt each month. If you spent less than you earned than you were actually paid interest on your money, just the opposite. The return you can expect from this hard-earned money largely depends on the level of risk associated with it. However, no risk is equal to a reward; risk is not a big scary animal we all run away from.

The first thing you need to decide is how much money you want your investment to make. It can be from 1% to 30% and everything in between. The return of one percent is incredibly low, but very safe. In fact, 100% safe, as it pays your savings account. If you think you are making money in your savings account, then you have forgotten to think about inflation. Assume that inflation is about 3% per year. If your investment is 3%, you are broken. You didn’t earn a penny because inflation took 3% of your money’s purchasing power a year ago. $ 100 today costs only $ 97 a year. If you have invested 3%, which is $ 3, you are again at $ 100. Get a 3% discount on your return and this is your real return.

If you want a high return, don’t expect to give up the risk. The higher the reward, the greater the risk you need to consider. Currently, the bonds are about 5%. This is a safe 5% and you will not lose this money. When you think about inflation, it suddenly turns into gas money. Shares have beaten every other investment in every 20 years. Stocks are shrinking the most, but there are many ways to enjoy the rewards of the stock market without worrying about losing your children’s college fund. You can buy an index fund that invests in the S&P 500 or Dow Jones. The S&P 500 is 500 companies, if you have invested $ 500, $ 1 will be in each individual company. S&P makes about 10% per year. There is very little chance that S&P will reach zero, although there are years of adjustment. That’s why you need to invest long-term. If you start buying in one of these right years, you will lose money, but you think long term and you will realize that you are buying heavy in these adjustment years. Buy low and sell high is the game, but many of us do it the other way around.

When you invest, not only risk and reward are important, but also your age. This may be new to you, but age is very important for investing. Age tells us what level of risk we should expect. If you are 20 years old, you need to invest in the riskiest funds possible. The reason is that a person has more time to replace this money if he loses everything. The elderly citizen does not have these years and the advice is just the opposite. Little or no risk and invest only in a fixed income that is bonds and CDs and 100% safe alternatives. The older you get, the less risk you have to allow. 10% fixed income for each decade you are old is a general rule. Calculate the math and determine the level of risk.

There are many safe investments there, but as they say, “no pain, no profit.” The reward for “pain” is 10% and a return on upwards that you can enjoy.