Lost Opportunities

The thing about opportunity is that you will know about it only when it passes you by. The gate opens now but what will happen if you enter (or if you choose not to enter) can be known only post-facto. That is how the life unfolds and there is nothing you can do about it.

But what you can do is spread your risk.
First, figure out your risk appetite.
Then enter every window of 'opportunity' that opens up within your risk band.
Some will click and some will not.
But you would have tried.

For a person who is as risk averse as I am, the goal to shoot for would be: preserve my initial investment + 14% return.

What is your goal?

The Risk-Reward Curve

Beware of wisdom that does not have any basis. "More risk carries more reward." Sure? Who told you that?

Just check out the Risk-Reward curve in Seth Godin's blog. I have no doubt that Seth means well. He is inspirational. But the questions you need to ask are:

Where did he get this risk-reward curve from?
Is this curve universal?
I could draw a risk-reward curve that goes exactly opposite.
Does this curve apply to all fields of endeavour?
How do you take care of Black Swan events?

In his brilliant book, The Dip, Seth Godin warns you of the cul-de-sac - dead end that go no where. What if your investments are in a cul-de-sac?

I am absolutely positive and brimming with confidence when I have to try out something that is relevant to my skill. Blogging? I will give it my best and am ready to serve my time out in the dip. Surely I know when to quit and when to stick around. But I am totally risk averse to putting my hard earned money in some investment that shows me a risk-reward curve that has no basis.

Lesson: When you invest in yourself, go all out - achieve that goal. You may get it, you may not. But it is definitely worth trying. But - and this is a big BUT - be extremely risk averse for your investment that depend on others. If a stock broker or an agent comes to you showing how your profit will grow based on some unsubstantiated risk-reward curve, throw him/her out.

The magic of interest compounded

There is just one golden rule when it comes to becoming rich. And that is ...

You should earn money even when you are not present.

So that rules out jobs.
Or even business where you need to be present all times.

Building a business where you employ clever employees is definitely a very big yes.
Investments in property, shares, mutual funds are a yes.
And surprise, surprise, monetized blogs (such as this one) are also a yes. At least for some (No! Not me! Not yet!)

The trick is to start early.
Reason: You have sufficient time to recover from setbacks - there will be setbacks, guaranteed. Youth is not risk averse. So that helps.

More importantly, the real benefit of compound interest kicks in.

How much do you think you get if you invest merely Rs. 2000 per year for 25 years that returns you 10% compounded annually. It is Rs. 2,16,363 ( more than 4 times)

You are risk averse?
You would like to put the money in a recurring deposit bank scheme that gives you just 5% returns compounded. In 25 years your money will become Rs. 1,00,227 (a shade over double)

But you should have 25 years with you. So don't start at 40. Start when you are 25 years old.