Are you the kind of a person who ventures into something because it’s popular or are you the one who takes time to analyze information and calculate the amount you are willing to risk?
You need to determine the level of risk you are content with. It makes no sense jumping into the deep end yet you are just learning how to swim. As I have stated before, every business venture is a risk. But how far are you willing to go and how do you determine your level of risk?
- First and foremost, your personal circumstances and commitments. Only a fool would invest all his money without factoring his responsibilities or commitments. Your dependents, utility bills and other responsibilities must come first. You must be able to project how much your responsibility will consume every month. If you have few responsibilities, look at your cash flow and your capacity for loss? The last thing you want to do is end up in debt, so stay within your means.
- Your personal attitude to risk. You have to decide your own attitude and appetite for risk. The market won’t do it for you and neither will your family or friends. Think about market variations, share prices going up or down, liquidation, defaulting… can you handle the heat?
- Your income and investment goals. Where, what, when, how long, how much will you invest? You need to factor the time frame, estimated period for returns and work out the percentage of wealth you are willing to risk. Plan your investments and your money. Spread it widely but begin by focusing on a key investment area.
Personally, I have a big appetite for risk but it grew over the years. I was very cautious at the beginning and would only sail close to the wind (financially) but now I can afford to spread my risk. Once you have decided your attitude to taking risks, it allows you to create long term investment plans with ease.
I always say that you can never stop learning or seeking knowledge. Information is key. The more you define your wealth goals and know where to place your eggs the greater the advantage. However, if you have very little information or are not sure where to invest, then it increases your risk. Be informed and stay informed.
Finally, as you create and determine your risk appetite, don’t compare yourself with others. Determine your own attitude and propensity. Consider the worst case scenario, how much stress and/or excitement will you go through and can you handle it. In the end, what matters is the risk you took and how you overcame it. Make sure you have a fall back plan if anything goes wrong. Don’t be that miserable person seated at the bar, sharing how they lost all their money.
Don’t put all your eggs in one basket; take calculated risks. I can assure you that it’s very satisfying in the end even though you start out not knowing the outcome.
Life is a risk; nothing is certain. So go ahead and determine your appetite for it. All the best!