Here is a key rule of investing – understand your risk appetite.
Not sure how to do that?
Try the exercise below.
Imagine you’ve invested 1000 into the thing.
Now imagine it has lost value.
How do you feel?
Do you feel like this will give you sleepless nights, or are you still calm?
Now imagine you’ve lost it – how does that make you feel? Can you move on easily, or will it cause you sleepless nights (and regrets) for days, weeks, and months to come?
Now go through the same steps with the amount of money you were considering investing.
If peace of mind is more important to you, then generally you would do better with safer investment approaches.
But if you are someone who is willing to take risks, and will not lose sleep over it even when it goes down or you lose the investment, then riskier strategies will be your thing.
But whatever your risk appetite, never invest more than you can afford to lose. Even if you have nerves of steel and can mentally deal with the riskiest strategies, it’s still not a smart idea to invest money losing which can risk your livelihood.
I learned this the hard way, so learn from my mistakes.
Think about your risk appetite before you invest.
And don’t invest what you can’t afford to lose, especially in riskier investments.
Also published on Medium.