| Wealth is an abstract. It is sometimes | | | | retirement. |
| defined as fecundity or sustainable spending. | | | | |
| It is defined as the primary goal for | | | | If the money is not needed, and its loss will |
| investors and is measured by the level of | | | | not have a major impact on the investor's |
| 'expendable income' or 'capital' in their | | | | wealth, then the investor can look at biotech |
| portfolio. | | | | stocks that may skyrocket if the lab |
| | | | discovers a new drug, or a cure for a |
| Many people define wealth by the total of | | | | disease, or will bottom out if the lab loses |
| their assets including real estate, funds, | | | | their funding. |
| and investments. Others measure it by | | | | |
| calculating the amount of money they can | | | | Market Risk |
| afford to spend. Either way, it is important | | | | |
| to pick one method of calculating wealth, and | | | | This is the risk associated with the |
| stick to it. | | | | different markets. Can an investor survive a |
| | | | stock dive, or if the real estate bubble |
| How wealth is defined dictates how a person | | | | bursts. This will determine whether the |
| approaches investing. Benjamin Graham states | | | | investor can manage mutual stocks, or should |
| that the investment management is the | | | | stick with blue chip stocks. It will also |
| management of risks, not of returns. This is | | | | determine whether the investor purchases a |
| the foundation of a well-managed precept. | | | | good home in a good neighborhood, expected to |
| | | | appreciate 10% in ten years, or penny stocks |
| There are several methods of managing risks. | | | | that might double in eighteen months. |
| Each one provides several benefits, depending | | | | |
| on the investor's aggressive behaviors or | | | | Managing Market Risk |
| willingness to accept high-risk ventures. | | | | |
| However, understanding risk can be tricky. | | | | This risk is associated with the area in |
| One person, such as a broker, may consider a | | | | which the money is invested. One way to |
| stock that does not perform well as a | | | | manage this risk is to stay within markets |
| high-risk stock. A private investor may | | | | the investor understands. Another way is to |
| consider a low-risk stock anything that does | | | | avoid buying into both fields. Gold and Real |
| not drop below the 10% level. | | | | estate are solid, but when they are |
| | | | increasing, stocks decrease, and vice verse. |
| Individual Risk | | | | By understanding the risk and expectations in |
| | | | one, two, and five decades, the investor can |
| This is the risk associated with the | | | | create a good diversification package. |
| investor's personal wealth. What can the | | | | |
| investor afford to lose? And, how long can | | | | The first two have statistically based |
| that investor leave their funds untouched. It | | | | solutions; increasing risk tolerance |
| is also important to calculate how much that | | | | addresses an emotional challenge. One way to |
| investor needs to gain, and in what time | | | | manage risk tolerance is to minimize the |
| span. | | | | negative impact of the negative risk. |
| | | | |
| Managing Individual Risk | | | | There are two ways to manage risk. First, by |
| | | | building a cushion against risk. Second, by |
| This is easy to calculate in the short term. | | | | ignoring it. |
| Just estimate how much money can be | | | | |
| comfortably invested. In the long run, it | | | | Education |
| involves a few in-depth calculations. The | | | | |
| amount of gains expected, and the impact of | | | | Education is a wonderful buffer against risk. |
| failing to meet expectations is a risk that | | | | It is not a magic spell to protect investors |
| must be written in black and white. When an | | | | from every facing risk and losing money, but |
| investor is planning for their retirement, | | | | the more knowledge an investor has, the less |
| the funds must grow. The rate at which they | | | | often they will make a poor investment |
| grow depends on the number of years before | | | | choice. |