Investing Risks — What You Need To Know

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Finance Like an Adult

Simple solutions are the best option to solve complex problems. Investing is an incredibly complex opportunity that can become problematic for the unprepared. However, simple tricks on Microsoft excel or google sheets can strengthen your understanding of the ground rules of investing.

Ground Rule #1 of Investing

The first ground rule of investing is determining the proper asset allocation for your investment portfolio. Your asset allocation is the percent of your investment placed in investment vehicles with varying levels of risk (e.g., stocks vs. bonds).

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What Should Your Asset Allocation Be?

Your asset allocation is a percentage (0% to 100%) of the amount you invested in high-risk vehicles (e.g., stocks) and low-risk vehicles (e.g., bonds or cash). These two percentages should combine to equal 100%.

  1. When you are planning on using the money you invested.

What Should You Do Next?

The next step is to invest! Use your desired asset allocation to guide you in the ratio that you invest in high or low risk investment vehicles. Remember to periodically monitor your asset allocation throughout time.

Takeaway: In 50 Words or Less

The first ground rule of investing is diversify your investments to shield you from risk. Your asset allocation is the percent of your investment placed in investments with different levels of risk. Use your desired asset allocation to guide the ratio that you invest in high or low risk investments.

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Matt McDonough

Matt McDonough

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Hello! I am a CPA by day, writer by night, and adventurer on the weekends. I’m on the lookout for fun ideas to read, please send anything interesting my way!