Most potential aspiring investors are often faced with one question, how to invest XYZ amount of money to ‘maximize returns while minimizing risk’. To answer that question here is a 5-step framework that should help most people evaluate their investment models/strategies. This is just a teaching session and not investment advise. Please speak to a personal finance professional to help you make specific decisions about your investments.
You can’t ‘maximize returns while minimizing risk’. Life doesn’t work that way. It’s ‘high risk, high returns’ – stock, seed stage investment, cryptocurrency, day trading, etc or ‘Low risk, low returns’ – bond, money market, CDs, treasury bills etc.
Luckily, you don’t have to chose ‘high risk, high returns’ or ‘low risk, low returns’. Instead you can diversify your investment to incorporate elements of both strategies through an investment portfolio. A portfolio balances your risk and rewards. Don’t ever put all your savings in any investment instrument. Diversification is the only way to play the investment game. Don’t ever buy a single stock; a mutual or index fund diversifies your risk. Always diversify.
Split your investment funds into 3 buckets:
Assign instruments to the 3 buckets:
Assign percentages to each bucket. Older investors need to be more conservative than younger ones. For example:
When a sweet investment deal comes along;
Don’t ever put all your savings in any investment.
If you have $500, create a portfolio and invest accordingly. Don’t just keep your money in a savings account, always invest a portion of your savings. But remember, not to invest more than 50% of your savings in a single instrument.
© 2023 Victor Mochere. All rights are reserved.
© 2023 Victor Mochere. All rights are reserved.