Personal Finance Learning Guide
<<< Section 9: Investing Strategy - Buying Assets
<aside> 🗒️ In this section: we define what risk is, how it impacts how much money your investment can make, and how to manage it. We cover what to actually invest in Section 11.
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Before investing, you need to first understand what risk is and how it impacts reward (or return). The more risky an investment is, the higher the potential reward is. Similarly, lower risk investments yield lower rewards. Why?
Let's take an example: putting $1 in a savings account is a low risk investment (you only lose that money if the bank goes out of business.) — that is why the bank pays you a low interest rate as reward (~1%). However, betting your friend $1 that you can correctly guess heads or tails when flipping a coin is much riskier (50% chance you could lose your money), which is why the reward is much higher (100% reward).
When investing, you want to spread (or diversify) your investments across the risk pyramid to avoid losing all your money 😭 . To learn more about risk-reward, check out this article.
<aside> <img src="https://s3-us-west-2.amazonaws.com/secure.notion-static.com/85e56e02-3757-401b-be3f-3b34590208ae/Favicon-simplify.png" alt="https://s3-us-west-2.amazonaws.com/secure.notion-static.com/85e56e02-3757-401b-be3f-3b34590208ae/Favicon-simplify.png" width="40px" /> You should have more high-risk investments when you are younger because you have more time to afford mistakes and have less when you are older.
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