The 100% Road to Financial Freedom (Work Your Capital Edition)
This article follows up on my previous article, where it covers what we can do to escape from the financial survival stage. If you had not have an Investment Fund yet, I suggest revisiting the previous article on how to build your first Investment Fund.
Here I cover how we can get our Ringgit to grow by itself. There are many ways we can go about it, but it is important that whichever way we choose, the way must suit us. Consider these:
(To make it simpler, we are going to assume that we delegate the job to a manager.)
[1] How much can I afford to lose my Investment Fund?
In financial lingo, this means figuring out your risk appetite. In other words, are you willing to accept that you have less Ringgit in the fund than when you started?
If you are not, then you have a Low risk appetite.
If you are okay, then you have a Medium to High risk appetite.
Low risk financial products typically takes your money and loan it to other banks/corporates for 1 night to 3 months. They check whether the bank/corporate have a very good history of paying back loans. They also loan to governments, such as the Malaysian government.
Medium risk to High risk financial products would be anything other than that. The manager may buy corporate bonds like IJM's or PLUS's, to high risk products such as shares. Given enough time, a company may go bankrupt and share prices would fall dramatically, hence that's why these are in the Medium to High risk category.
Extreme risk appetite?
(Source: Stanford)
[2] How long can I afford to leave my Investment Fund alone?
Understanding the time horizon is important because many investments only work WITH time. Without time, then it is gambling, not investment.
The time horizons can be anything but usually (a) less than 1 year, (b) less than 5 years and (c) 10 years or more.
How we figure out our time horizon depends on what is the Purpose of the investment. Investing for the children's university education can fall under (c) 10 years or more. Investing for no purposes is more suited for (a) less than 1 year horizons.
Next article
In my next article, I intend to list out some Investment Choices you can make to achieve your Purposes/Goals.
If you have any financial goals that you wish to reach (such as children's education, retirement etc), please comment with your [1] risk appetite and [2] time horizon in terms of how many years you want to allow for, and I will respond in my next article.
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