3068: [Part 2] Why Is Taking Some Financial Risk Important by Vicki Cook & Amy Blacklock of Women Who Money

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[00:00:30] This is Optimal Finance Daily. Why Is Taking Some Financial Risk Important? Part 2 by Vicki Cook and Amy Blacklock of WomenWhoMoney.com. Educate Yourself About Investing It's amazing how much information is at your fingertips when it comes to learning about investing, but the volume of information you can find online is also overwhelming to many new investors.

[00:00:56] Where do you start? What should you read? Who can you believe? These are all great questions. Our most important advice? Avoid getting your financial information from only one source. New investors can begin with learning some basic investing terminology and other investing concepts. Below is a list of some of the main categories of savings and investing products. Each has its own general level of risk and return.

[00:01:23] Within each category specific products may carry more risk or provide more gains than others. Savings Accounts U.S. Savings Bonds Certificates of Deposit Money Market Accounts Bonds Equities and Stocks Mutual Funds Index Funds Exchange Traded Funds Or EFTs Annuities And Whole Life Products

[00:01:45] There are also many alternative investments like real estate, precious metals, artwork, cryptocurrency, etc. that you might consider when deciding where to invest your money. Some investments will be passive, while others, like real estate investing, may be more hands-on. Educate yourself in anything of interest and never invest your hard-earned cash in something you don't understand. Keep learning Keep learning

[00:02:10] Once you get more comfortable, continue reading articles, blog posts, and investing books to increase your knowledge. Debbie Sanson's The Thousand Dollar Investor is a great place to start even if you only have a few hundred dollars to invest. Anxiety over investing can be eased with Julie Grandstaff's book, Save Yourself, Your Guide to Saving for Retirement and Building Financial Security.

[00:02:34] If you plan to work with a financial professional, make sure you understand how they make money. Consider working with someone who has a fee-only structure when starting to get unbiased advice. If you hire a financial coach, be sure to choose someone you're comfortable with and who has a track record of successful work with new investors. Also, check references and consider their background, knowledge, and experiences. Determine Your Financial Risk Tolerance

[00:03:01] You've probably heard that the younger you are, the more risk you should take when it comes to investing. When you have a lifetime ahead of you to earn more money and deal with economic downturns, you can afford to pursue higher returns. But you also need to remember that personal finance is personal. Your money story and emotions will impact the decisions you make now and in the future, and it takes time to build your investment philosophy.

[00:03:27] Financial professionals or coaches and even robo-advisors have tools or calculators to help you determine your level of risk tolerance. You might be surprised to find that you aren't as conservative as you think, or the exact opposite. There are also tools online such as the University of Missouri's Personal Finance Planning Investment Risk Tolerance Assessment. Vanguard and most other investment websites offer free online questionnaires too.

[00:03:54] After you answer the assessment questions, you'll get targeted feedback about your level of risk tolerance. Again, use more than one tool and compare your findings to determine the most accurate result. Take action and revisit risk.

[00:04:10] Once you've taken a deep dive into your financial situation and future financial goals, learned more about investing, or worked with someone on developing an investing plan, and figure out your risk tolerance, it's time to decide what to do about your investments and take action.

[00:04:28] Whether you decide to start investing, change asset allocation, or take more risk for a higher potential return, or stick with your current strategies for now, you're making progress toward building wealth for your future. You'll likely have more financial security by managing some level of risk. But only you can decide how much risk you'll take for potentially greater rewards. Once you determine a strategy, you'll most likely want to set it and forget it.

[00:04:56] But this doesn't mean ignore it. You don't want to become so comfortable with your investment decisions that you fail to reconsider what risk means to you over time. Diversification of your portfolio is key. Your risk tolerance may change as you age or deal with certain life situations and get closer to or eventually retire. Managing risk to build wealth. When you decide it's time to take on more risk, you don't have to rush to change your total investment strategy.

[00:05:25] Time is a crucial factor in the magic of compounding. But making investment decisions before you're ready and understand them can backfire too. Some people embrace risk by leaving all or most of their safe investments behind. Others will sacrifice higher potential returns for more security. If a conservative approach helps you sleep better at night, investing more money for a lengthier period will build wealth too.

[00:05:49] The important thing is you'll be making decisions about how to invest for your future rather than being afraid to take action. By assessing your financial health, you'll know exactly where you stand with money. You won't take on risk just because someone tells you it's important. You'll opt or not for investments with higher risk and greater potential returns because that's part of your financial mission and investing plan.

[00:06:13] Your mindset will shift over time from being fearful to courageously taking more risks. You'll be confident to ask questions and you won't panic in market declines. You'll have what it takes to be a successful investor. You just listened to part two of the post titled, Why is taking some financial risk important? By Vicki Cook and Amy Blacklock of womenwhomoney.com.

[00:06:41] 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, you build and manage your weekend plans. While they make it easy to invest for what matters, you just get to enjoy what matters.

[00:07:08] 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. Get started at Betterment.com. That's B-E-T-T-E-R-M-E-N-T dot com.

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[00:08:27] 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. I can't agree more with the advice here about exposing yourself to many different perspectives about money.

[00:08:54] It's one of the things I love about hosting this podcast. I'm getting exposed to so many different viewpoints on money, and many of them contradict each other. The thing is that personal finance is so personal, and what works for someone else might not work for me. But it might give me a clue, and when I read and listen enough, I gather enough clues from enough different people to solve my own financial riddle. Whenever I read financial advice, I read it as,

[00:09:24] this is what worked for me, not, this is what worked for me, so it will work for you too. And while I've read a ton about investing, I keep going back to JL Collins' simple path to wealth as the best option for me, so I love seeing that mentioned in this post. I also agree that your risk tolerance will change over time. I was really nervous to focus on investing after I got out of debt, but I've come a long way, and I anticipate this will continue to evolve.

[00:09:53] For example, I'm reading more and more about real estate investing, and considering adding this to my portfolio at some point. While it seems a bit too risky for my liking at the moment, I anticipate the more I educate myself on the topic, and the more secure I am financially overall, the more willing I will be to take on that risk. And I'm sure as I'm getting closer to retirement and tapping into my investments, my risk tolerance will shift once again.

[00:10:20] What I got out of this article is that risk can't be avoided when navigating your finances, but it can be properly managed. And that's a wrap for another show. I'll be back tomorrow where your optimal life awaits.