(SAN FRANCISCO) It doesn’t take a rocket scientist to see that there is real and substantial risk in any form of investing. If you are unsure, study the Bernie Madoff scam, Michael Milken’s junk bond debacle, or more recently, the bank and mortgage crisis that nearly bankrupt the world. In all cases, risk tolerance was not determined, but most likely, not followed.
Risk tolerance is essentially the allocation of funds so as to insure principal. If you have nothing (left) to invest, you certainly cannot make any money.
The adage “It takes money to make money” means don’t lose everything! Would you bet your entire mortgage payment in Vegas? Anyone who says investing is not gambling cannot be trusted. All investments have risk, the question is; How much?
Factors such as age (ie, how much time do have to be wrong or right). If you are young and single, you can risk a larger percentage of your portfolio. If you are wrong, you have time to make up for it. Additionally, you may not need the money now or anytime soon to say, pay for kids and college, a marriage or retirement. An older investor must realize that time is not on their side. They may need to use principal for living expenses or the high cost of insurance, etc. No one wants to be old and broke.
When It comes to asset allocation, always seek high risk/high reward investments in a small percentage of your portfolio; 1-5% is a good start. That implies that 95% should be LOW RISK. In this way, you can make a high risk investment that has low, or acceptable tolerance. If you lose it all, you have only lost a small percentage of your overall portfolio. Live to fight another day is a good rule.
In the case of cryptocurrencies, the future of money is here and will most likely continue to expand on a global level. Take advantage of the early stages of the digital currency culture, and you will most likely be rewarded in time. Be smart and conservative with your capital, manage your risk and understand your tolerance for loss. FYI; Since 1916, the US dollar has lost 95% of its value, yet continues to be the safest and most stable of all world currencies, but for how long? Many countries including Russia, China and Japan have begun trading commodities (like oil) in their own currencies vs. US Dollars. Q.E. (Quantitative Easing) by central banks and governments have created Fiat currency wars that will not end anytime soon.
Case in point; If you owned Bitcoin early and didn’t sell (any) at $1200, you may want to consult a financial advisor and consider a better risk management plan. If you bought at $1200 and are still hoping for it to return, I hope you are young. Understanding your unique risk tolerance and proper management would have you out at a reasonable loss.
Remember what they say on Wall Street:
“Bulls and Bears make money, but pigs get slaughtered”
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