3067: [Part 1] Why Is Taking Some Financial Risk Important by Vicki Cook & Amy Blacklock of Women Who Money

[00:00:00] ServiceNow unterstützt Ihre Business Transformation mit der KI-Plattform. Alle reden über KI, aber die KI ist nur so leistungsfähig wie die Plattform, auf der sie aufbaut. Lassen Sie die KI arbeiten – für alle! Beseitigen Sie Reibung und Frustration Ihrer Mitarbeiter und nutzen Sie das volle Potenzial Ihrer Entwickler. Mit intelligenten Tools für Ihren Service, um Kunden zu begeistern – all das auf einer einzigen Plattform. Deshalb funktioniert die Welt mit ServiceNow. Mehr auf servicenow.de.

[00:00:30] This is Optimal Finance Daily. Why Is Taking Some Financial Risk Important? Part 1 by Vicki Cook and Amy Blacklock of WomenWhoMoney.com No matter where you are on your financial journey, controlling your finances is one of the most important things you can do for your future. While it's challenging to break the cycle of living paycheck to paycheck or find money to invest when you're supporting kids or helping aging parents,

[00:00:57] building your own financial house must be a priority. Unfortunately, you can't just save money to build long-term wealth. It may seem like the safest way to get ahead is to keep increasing deposits to your savings account, but your money won't be making much money, especially if it's at a traditional bank.

[00:01:15] You're also risking your money's future buying power to inflation, even if you have a high-interest online savings account. That's why it's essential to consider taking more financial risk to achieve a greater return. If you understand your risk tolerance and already have a diversified portfolio aligning with your financial goals, you probably don't need this article.

[00:01:38] But if you consider yourself risk-adverse, conservative with your finances, or anxious about investing and losing money, we urge you to keep reading. Your future self will thank you when your net worth grows along with your confidence. What is financial risk?

[00:01:57] According to the U.S. Securities and Exchange Commission's Investor.gov website, risk is the degree of uncertainty and or potential financial loss inherent in an investment decision. All investments involve some degree of risk, even those appearing safe. It may make sense to you that investing in just one asset class, like buying shares in an individual company or only buying investment properties, is risky.

[00:02:24] Putting all of your financial eggs in one basket isn't a wise thing to do. But the Financial Industry Regulatory Authority, or FINRA, explains that merely choosing to put your money in conservative products like certificates of deposit, or CDs, and high-yield money market accounts is also risky, as they may not earn enough to keep up with the rate of inflation, which is currently around 2%.

[00:02:50] If you're earning 2.1% interest on a CD and the rate of inflation is 2%, your money isn't growing much. And if your money is sitting in a safe savings account at a traditional bank, or worse, under your mattress, it's earning little to no interest. While a savings account or CD seems like a low-risk money move, losing buying power over time is still risky.

[00:03:16] You'll be able to buy less in the future thanks to inflation, and your money isn't making you more money, and that's the goal of investing. Preparing to Take More Financial Risk If you've been complacent about your financial future, or worry your current savings and investing strategies aren't going to help you meet your financial goals, there are plenty of things you can do to adjust your course.

[00:03:39] But before you decide to put your money at risk for a higher return, you need to evaluate a few things. Number one, current and future available dollars. Do you currently have $100, $10,000, or $500,000 to invest? How much can you continue to invest each paycheck, per month or year? Number two, current and future financial goals.

[00:04:05] Are you saving for a car, a house, an investment property, retirement, or a child's education? Number three, time frame for each goal. Is it one year, three years, 10 years, or 40? Number four, financial product knowledge. How much do you currently know, or are you willing to learn about savings and investment products? Do you want to be a DIY investor, use a robo-advisor, or hire a traditional financial advisor?

[00:04:34] Number five, personality mindset. Are you by nature a risk taker, or are extra safety precautions more your thing? Do you hold an abundance or scarcity mindset? Your age, net worth, and ability to earn future income are significant factors in determining your appropriate investment risk level, now and in the future. A 25-year-old you will invest differently than a 40-year-old or a 65-year-old you.

[00:05:02] Number two, determining when risk is appropriate and when it's not. Before putting money in an investment, you want to consider your ability, financially and emotionally, to recover from a financial loss. In addition to the level of risk and potential return any investment product carries, you'll also want to consider any upfront or ongoing fees it requires. Plus, you need to know how quickly you can access your money if you need to cash in on your investment.

[00:05:29] General recommendations are not to risk emergency funds or savings for short-term goals less than three years. Because not only does investing reduce your ability to access your money fast, it also means you could end up with less money than when you started, sometimes a lot less. There are, of course, exceptions. Under the right circumstances, taking on some risk when investing for a specific short-term goal or even investing some of your emergency funds could be right for you.

[00:05:57] To determine if taking on more risk is appropriate, assess your financial health. If you aren't tracking expenses or using a budget, you may be missing out on growing the gap between your income and how much you spend. Making small changes in your spending can give you extra money to pay down debt, grow an emergency fund, or begin investing. Are you ready to make significant changes? Consider your housing, transportation, and food costs.

[00:06:23] Making changes in these three areas may help you find hundreds of dollars or more each month to invest for your retirement years. If you can't risk losing any of your money, you should reconsider your plan to invest. If you have a 401k with a company match, make contributing to get the match a priority. You don't want to lose out on free money. Then continue to build savings and reduce your debt load before increasing your contributions. Finally, if you have loved ones who depend on your income,

[00:06:53] ensure you've taken steps to provide for them too. While you hope nothing terrible will happen, consider protections such as life or disability insurance as you look at your overall financial wellness. It may cost a lot less than you think for a product like term life insurance, but the peace of mind it will give you is priceless, especially if you want to start investing in some higher risk assets. To be continued.

[00:07:21] You just listened to part one of the post titled, Why is taking some financial risk important? By Vicki Cook and Amy Blacklock of womenwhomoney.com. And now a word from our sponsors at Betterment. When investing your money starts to feel like a second job, Betterment steps in with a little work-life balance. They're an automated investing and savings app, which means they do the work. While they build and manage your portfolio,

[00:07:49] you build and manage your weekend plans. While they make it easy to invest for what matters, you just get to enjoy what matters. Their automated tools simplify the complex and put your money to work, optimizing day after day and again and again. So go ahead. Take your time to rest and recharge. Because while your money doesn't need a work-life balance, you do. Make your money hustle with Betterment.

[00:08:18] Get started at Betterment.com. That's B-E-T-T-E-R-M-E-N-T dot com. Investing involves risk, performance not guaranteed. When was the last time you checked if your insurance still fits your needs? With Insurance Pro Agencies, powered by VIU by Hub, find the right coverage in minutes.

[00:08:44] Visit MyTopQuotes.com or text INSUR to 855-665-0829 to get personalized auto, homeowners, renters, condo, and other insurance quotes from over 50 top-rated carriers across the U.S. It's fast, simple, and designed to make the process as effortless as possible. Ready to start?

[00:09:08] Visit MyTopQuotes.com or text INSUR to 855-665-0829 today. Insurance Pro Agencies, powered by VIU by Hub, helping you protect what matters most. Insurance has never been this easy. Texting INSUR means you will receive information and occasional promotional messages. Message and data rates may apply. You can reply STOP to opt out at any time.

[00:09:37] It's a bit of a longer post, so I'll finish the rest up for you tomorrow. But what I'm gathering so far from this post is that there is financial risk to every decision you make around money. However, there are strategies to manage this risk. Even the most risk-adverse shouldn't take the risk of keeping their nest egg in a savings account and losing buying power to inflation. One of the best ways to manage risk is diversification,

[00:10:06] and I would like to suggest that it doesn't just apply to your investments. Diversification in sources of income is another powerful way to manage risk, because if you lose one source of income, you still have others to keep you afloat. I also find that keeping my expenses very low allows me to stomach more risk in investments, because I know it won't take much income to cover my expenses.

[00:10:32] Another thing that helps me navigate the risks of investing in a 100% stock portfolio is that I am a long-term investor. I don't anticipate needing that money for many years to come, so the volatility of my investments doesn't keep me up at night. Finally, a well-stocked emergency fund is another way to make sure you're not touching your investments when needs arise. You'll be less likely to be emotionally affected by the risks in your investment portfolio

[00:11:01] if you know you have other cash to tap into if and when you need it. And that'll do it for today. Thank you for being here and being a subscriber to this show. I'll be back tomorrow to finish up this post, so I'll see you there where your optimal life awaits.