Often, I see investors trying to make the absolute maximum return they can. Chasing the hot stocks and trading at very high-risk levels. That’s the wrong goal for most people though.
For most of us, all we need though, is enough to meet our goals and future spending needs.
How much investment risk should you take?
I guess the problem boils down to a lot of people don’t actually know what they want or how much they need. That is where an unbiased financial adviser can help if you don’t know where to start. Otherwise, you need to figure this out first.
It is critically important, otherwise you will take on too much risk. Using a cricket analogy, it would be like needing one run to win off the last ball, yet trying to loft it over the grandstands for a six. Sure, it may pay off occasionally, but most of the time you will come up short, not only not hitting a six, but also not getting that single.
Using investing, if you need annual returns of 5% to meet your long-term needs, then having a strategy where you try and achieve 10% returns has a higher likelihood of you achieving less than 5% returns, than less risky investments with a 5% target.
The 10% seeker will be more likely to try and time the market.
The 10% seeker will be more likely to be less diversified.
The 10% seeker will be more likely to hold onto stocks for longer than suitable.
As I said, it can pay off. But it also can blow up in your face. Are you willing to take the chance? Some people are. But many don’t even know they are taking on more risk than they need. Simply because they don’t know how much they need.
The most efficient investors have a good idea of their goals and future needs. Then they can build an investment portfolio around desired returns that aren’t too high or too low for their situation.
If you need an investment plan or recommendations , then get in touch today.
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