Unlock your risk tolerance power for better returns
Posted Sunday, September 23 2012 at 13:46
- When you launch a business you put everything on the line, including your financial well-being, career opportunities, family relationships and emotional health.
- Insurance coverage helps to guard one against loss from death, disability, accidents and severe illness.
- Although investing individually is noble, pursuing a venture through groups or chamas is advisable.
- As a rule of thumb, a meaningful investment plan with a potential of generating high returns requires a longtime horizon of capital investment.
Risk tolerance which is simply how you feel about putting your money in a venture or investment that promises returns is what drives business decisions.
Being an entrepreneur can be rewarding, but only if you are ready to take risks.
When you launch a business you put everything on the line, including your financial well-being, career opportunities, family relationships and emotional health.
It is what stops many business people from braving the tide to invest in high risk ventures to grow wealth. But the tie between returns and risk is of direct proportion—the higher the risk the higher the return.
How then can a risk-averse investor unlock his risk tolerance limit ? Below are the various ways to consider if you wish to succeed.
Start at sunrise
Age can influence one’s risk tolerance. For instance, between a 25-year-old investor and an older one aged 65, the latter would shy away from risky investment to safeguard his retirement nest egg which could be his only source of livelihood.
The 25-year-old, given his youth and his income growth potential perhaps from employment is likely to take greater investment risk since he is assured that his income streams have time to grow.
The older investor would go for less risky exposure because his earning power is diminishing. By starting early, one would also have adequate time to secure a long investment time horizon.
Establish adequate emergency fund
Emergency fund is a cash buffer that provides quick money to cushion one from sudden loss of income that could result from job loss in case of layoffs or retrenchments.
An emergency plan influences one’s risk tolerance. Potential investors with sound emergency plans tend to be less cautious since they are not worried about things such as medical bills or layoffs.
During the investment period, one needs a safeguard from abrupt financial loss that would tempt one to dip into invested capital before it accrues returns or to sell prematurely to cover unexpected expenses.
Any access to capital invested before it attains break-even may cause loss or erosion of capital as an investor faces deductions in form of upfront fees or penalties for access before the specified period of investment.
Secure adequate insurance coverage