1061: Is Your Risk Tolerance High Enough To Invest? Follow The Slaughter Rule by Sam of Financial Samurai


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I'm here every single day reading to you from the very best personal finance blogs on the web. And if you enjoy this crazy idea of reading blogs to you for free it would be great if you could share this podcast with somebody today. Maybe a friend a family member somebody at work wondering what the heck. You're always listening to You I can email them or text them a link to old podcast dot com slash. Listen or even better. Maybe you can subscribe to the podcast right there on their smartphone. It is a a huge help to keep this show going and growing. And I'm GonNa keep this intro Nice and short for you on this Tuesday so let's get right to today's post as we start optimizing in your life your risk tolerance high enough to invest follow the slaughter rule by Sam of Financial Mansell Samurai dot com as. I've gotten older. My risk. Tolerance has steadily declined. This is why only got about thirty percent of my net worth allocated to the public public markets when you accumulate enough wealth you no longer want to have as much exposure to assets that are intangible risky and hard to control. There's just too much at stake for example let's say you've got a respectable two hundred thousand dollars. Invested in the market if your portfolio loses thirty percent of its value you can still make up sixty thousand dollar loss through contributions from your various income sources. It may take awhile but based on current median income levels. Sixty thousand is not an insurmountable loss if you lose. Thirty percent on a two million dollar portfolio making up six hundred thousand dollars is a grind. If the two million was derived mostly from middle class wages you earned over the decades. It's you've pretty much screwed yourself out of ever living off a two million dollar portfolio. If you plan to retire then you might be dead long before you ever get back to. Even the history of market declines some may think the more money you have the more risks you can take in my twenty s. I used to think this way To be young and so bold as you get older you stop thinking only about yourself and begin thinking about taking care of your aging parents your spouse your children and other people around you who are less fortunate responsibilities increase with age. They don't decrease during times of volatility. It's always a good idea to reassess your risk tolerance this latest bull market created investment gurus out of many people who never experienced a downturn downturns always come the question is whether you have the risk tolerance to hold on until the recovery a correction in the stock market is usually defined as a ten percent or greater drop in a major index. Like the S&P five hundred but as we know from history bear markets sometimes correct much more than ten percent. The stock market can easily go down fifty percent plus over a five to ten year period. If you have to sell during a bear market you will likely miss out out on huge gains later. On a fifty percent decline in an investment requires a one hundred percent increase just to get back to where you started what investors need is time. I'm in the market to withstand all the punches now that we've reviewed the history of the stock market. It's easy to see how we could correct. Even further than ten percent given sluggish employment problems problems in Europe and China valuations on the upper end of historical ranges rising interest rates a bubble in private equity and slowing corporate profits. The stock market tends tends to be a great harbinger of things to come once. The stock market goes so goes the property market labor market private equity market and everything else follow the slaughter water rule for investing if you are unable to withstand a fifty percent drop in stock prices then do not invest in the stock market those who are unwilling to lose fifty fifty percent of their capital will inevitably panic cell and missile likely rebound for those who didn't have much capital invested during the two thousand eight to two thousand ten crash. It's more than likely you are overconfident. About your risk tolerance the common response to a fifty percent correction is I'll just buy more and stocks are on sale these types of responses sponsored demonstrate either a lack of memory or the lack of experience during times of difficulty if the stock market is crashing by fifty percent. Everything else is also getting crushed. Your job loss. Last risk just increased by ten x your entrepreneurial income is getting slaughtered because clients stop spending money. Non Prime real estate will flood the market sending prices lower when you're world is collapsing around you all. You WanNa do is horde as much cash as possible. If Apple's earnings are down by fifty percent and apple's shares are also down by fifty percent apple is not on sale it's value based on price to earnings multiples is still the same. The only time a stock is on sale when the current valuation overly discounts future. Your profit expectations. Please understand. This basic concept be honest with your risk tolerance quote. Don't confuse brains with a bull. Market Humphry Neil. Be Honest with your risk tolerance by carefully analyzing your net worth makeup to help protect yourself and your dependence just because someone has ninety ninety percent plus of his net worth in the stock market. Doesn't mean you should too with about thirty percent of my net worth in the stock market might worth would take at least a fifteen percent hit in case of a fifty percent correction. Unfortunately if the S. and P. Five hundred is cratering by fifty percent my real estate holdings and business will probably also burnt as well having just about ten percent of my net worth and CDs and cash just doesn't feel like enough anymore. I'm bracing for some lean times ahead and so should you over the next twelve months. My plan is to save as much cash as possible. Find A fulltime job or new consulting opportunities and look for more online business partnerships. You just listened to the post titled is Your Risk Tolerance High enough to invest. Follow the slaughter rule by I SAM OF FINANCIAL SAMURAI DOT COM and a real quick thanks to anchor for hosting this podcast. Anchor is the easiest way to make a podcast. They'll distribute your podcast for you. So it can be heard everywhere spotify apple podcast Google podcasts. And many more you can easily make money from your podcast to with no the minimum listenership anchor gives you everything you need in one place for free which you can use right from your phone or computer creation tools. Allow you to record record and edit your podcast so sounds great. Download the anchor APP or go to anchor dot. FM to get started and that should do it for another edition of optimal optimal finance daily. I will be back with you tomorrow. We'll have opposed from E._S._I.. Money so I'll see you there. In the Wednesday show where your optimal life awaits.

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