No! I don't invest my money! (Part 2)

?Last week we spoke about compounding and time.

OK – TIME also affects RISK.

What do I mean? The longer you have, the more you’re able to sustain hits and falls. So, let’s say you invested and you’re 35 – you’ve still got a lot of “earning” years left under your belt, and so you can earn again, get back again and make up for your losses.

Now, that reduces with time/age, because your earning capacity declines (I mean that’s the standard scenario, of course times are changing and potentially you can keep working well beyond your 80s now). But it’s to deliver a point.

Now – what else matters for the BASICS. Your EARNING potential.

How much you earn, determines how much you save, and how much you in turn can invest. So, if you earn BHD 500, or BHD 5,000 – your “capacity” changes.

Additionally, your financial responsibilities/dependencies. Makes a huge difference.

Now – leaving time aside for a minute. Your risk “appetite” will affect your investment preferences. And remember – to each their own.?

So, your risk appetite has to do with you (1) ability and (2) your willingness.

Your ability (we discussed earlier) through your earnings potential/financial dependencies. Your willingness is just how risky you’re willing to be with your money – and that has a lot to do with your experiences and personality.

Both are right, do what suits you best.

So – for now, figure out

1. How much you earn (more importantly – how much you CAN earn)
2. How many years of investment you have under your belt – depending on your plans and forecasted work life etc.
3. How much risk you can handle (consider your financial responsibility etc)

Key points to remember:

1. The earlier you start the better
2. Compound interest (profit) is your friend
3. We all have different risk tolerances, and so that’s something for each of us to figure our depending on our situation.

Then meet me again next week, we’ve got a few things to unwrap

#financialliteracy #investments #goingtothebasics