Rat Race Running

When we invest, we need to consider many things. Our investments should also be compatible with our present and future needs, not just because of social media hype or the fear of missing out (FOMO).

So, if your investment stresses you out, there are many possible reasons. Here are five things that I think you need to reconsider with your investments:

1. You think that your investments’ profits are guaranteed.

Any honest investment advisor would never guarantee a profit. They can only provide potential profits based on an investment’s historical performance.

For example, PAG-IBIG MP2 has been one of the trending investments in the past few years because of its high dividend yields. But if you’ll notice, this investment doesn’t guarantee how much dividend they will give.

Another investment is index mutual funds. It is a collection of assets, typically stocks. The price of the mutual fund will go up or down relative to the general movement of the stock market. So, the usual 5-10% annual market return narrative is only based on historical data.

Another reminder is to be very careful and skeptical of anyone offering a guaranteed profit from investments, especially in financial markets like stocks and crypto.

You may also read this post to identify if your investment is a scam.

Related:
Red Flags: How to know if you’re investing in a scam?
Absolute Beginner’s Guide to PAG-IBIG MP2

2. Your investment does not match your risk appetite.

Your risk appetite determines how much risk an investor can tolerate and stomach. Your risk appetite will also suggest which investment is best for your personality.

For example, suppose you are a low-risk (conservative) person. In that case, it will be very stressful for you if you invest in the crypto market because of its high volatility and uncertainty. 

Likewise, suppose you are a high-risk (aggressive) individual. In that case, investing in money or bond markets will be dull.

Remember that risk and reward are directly proportional. So, it’s either high risk, high reward, or low risk, low reward. There are generally three risk appetites, from low risk to high risk:

A. Conservative Risk Appetite. 

Investors prefer very low market volatility or almost guaranteed returns in their portfolio, even if they are low rewards. Investors with a conservative risk appetite may invest in money market funds, bond funds, or time deposits.

B. Aggressive Risk Appetite. 

Investors who eat volatility for breakfast. They prefer high-risk investments because of the high possible reward. Investors with an aggressive risk appetite may invest in equity funds and crypto markets.

C. Moderate Risk Appetite. 

Investors prefer the best of both worlds in terms of risks and rewards. Moderate-risk investors can build a portfolio with a combination of high-risk investments like stocks and low-risk investments like bonds. There are also investments called balanced funds that include both stocks and bonds.

You may test your risk appetite through this calculator.

3. You’re investing the money you need.

One of the biggest and most costly mistakes any investor can make is to invest the money you need to pay your bills and put food on the table.

Many people made money during the last bull run because of the relatively easy market. They thought they had what it takes to be full-time traders, so they quit their day jobs. Unfortunately, the bull market ended, and the bear market began.

Since many were unequipped to handle the volatility and slow growth of the bear market, they were not earning enough to support their basic needs, so many decided to return to their old jobs.

This is an important lesson to understand. If you’re investing your grocery, utilities, and rent money, you are putting yourself and your family in danger.

Also, you must avoid borrowing money to use as your investment capital.

4. Your time horizon does not match your investment.

Your time horizon is as essential as your risk tolerance. It will dictate which investment is most appropriate for your investment goal and age.

For instance, if you’re planning to marry in two years, you should not invest your marriage fund in volatile markets like crypto or speculative stocks. Investing in high-risk funds is not in line with your investment goal. The more appropriate investment will be in high-interest savings or short-term time deposit funds for capital preservation.

Another example is if you’re 25 years old and saving for your retirement at 45. It would not be appropriate to invest in low-risk investments like bonds or money market funds because you will not be able to maximize the advantage of starting early. The better investment would be in higher-risk assets like growth or dividend stocks.

Generally, there are three investing time horizons:

A. Short-term (Less than one year)

You should invest in low-risk products like bond funds, money market funds, time deposits, or high-interest savings accounts. This will preserve your investment capital.

B. Medium-term (one year to five years)

The best investment vehicle is the balanced fund. Since it is a moderate risk, your capital will be invested in a combination of low-risk (bonds) and high-risk (stocks) investment vehicles.

C. Long-term (more than five years)

The best investment is in equity funds like the stock market. The time component will normalize the high risk. The longer you invest, the safer the stock market gets.

5. You don’t fully understand your investment.

The biggest reason people would be stressed over their investment is that they may not fully understand where they are invested. 

They may have just been enticed by friends or family members who posted on social media about a new shiny product that supposedly offers guaranteed returns.

Knowing the red flags that may indicate an investment is a scam is also essential. You may read a previous post here.

Knowing your investment goal, risk appetite, time horizon, the ins and outs of the investment, and other related factors is essential. Study and learn as much as possible before putting in your hard-earned money.

Final Thought:

Investing can be easy or stressful, depending on the investor, so it is essential to understand where you’re invested first.

Try to find online resources, social media groups, and mentors to guide you in starting. Investing and money matters will reveal many things about yourself.

Happy investing!

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The featured image was drawn by: cRAY.z Random