Personal Finance Learning Guide
<<< Section 10: Understanding Risk
<aside> 🗒️ In this section: We cover what appreciating assets (cash, stocks, real estate, crypto, etc) to invest in. Check out Section 12 for the tips & tricks we want to pass on to you and Section 14 for portfolio strategy! 📈
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<aside> <img src="https://s3-us-west-2.amazonaws.com/secure.notion-static.com/652dae79-8180-44e7-beb1-a8f2c29a36ea/Favicon-simplify.png" alt="https://s3-us-west-2.amazonaws.com/secure.notion-static.com/652dae79-8180-44e7-beb1-a8f2c29a36ea/Favicon-simplify.png" width="40px" /> Focus your investments in what you know or have an "edge" in (famed investor Warren Buffett calls this your "circle of competence") — whether that's technology companies, sneakers, bitcoin or something else.
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Warren shows you how to optimize for your circle
Warren shows you how to optimize for your circle
To give you a starting point, below is a list of some common assets people invest in:
<aside> <img src="https://s3-us-west-2.amazonaws.com/secure.notion-static.com/08afe515-e520-48f6-974b-2fabc819fb20/Favicon-simplify.png" alt="https://s3-us-west-2.amazonaws.com/secure.notion-static.com/08afe515-e520-48f6-974b-2fabc819fb20/Favicon-simplify.png" width="40px" /> Holding a small-to-moderate percentage of your savings (e.g. 20-30%) in a savings account is a good way to manage risk, grow your money, and make sure you have an [emergency fund](https://www.nerdwallet.com/article/banking/savings/emergency-fund-why-it-matters#:~:text=An emergency fund is a,%2C costliest of all%2C unemployment.) for unexpected expenses.
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Risks: None
Reminder: if you need a refresher on how savings accounts work or how to start one, check out Section 6A on savings.
<aside> <img src="https://s3-us-west-2.amazonaws.com/secure.notion-static.com/7ccde95f-6db3-4566-98f1-0feebafd85c6/Favicon-simplify.png" alt="https://s3-us-west-2.amazonaws.com/secure.notion-static.com/7ccde95f-6db3-4566-98f1-0feebafd85c6/Favicon-simplify.png" width="40px" /> Buying homes is a great avenue to invest, whether you 1) buy it for yourself to live in, or 2) buy it for others to rent out or Airbnb.
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If you buy a house that you live in, instead of paying rent to live in an apartment owned by someone else, you are building equity via your monthly loan payments in an asset that hopefully will also rise in value. If you rent it out to others, you get two benefits: 1) someone else is paying for the benefits you get from the first scenario, and 2) if you are able to charge a higher rent than your mortgage payment, you can use that extra cash to buy more assets.
Another advantage with investing in real estate is leverage (see below) and compound interest, especially if you own a home for a long period of time.
Risks:
