When you invest your money in whatever way or form, such as in unit trust funds, in the stock market, or in an investment account, your money will grow fast, grow slowly, remain the same or does not grow at all or in a worst case scenario, reduce in amount or worth.

The message here is, you can lose money in an investment scheme and instead of getting richer, you may turn out poorer. Most people like to see the good returns only or how much they can make when investing in a scheme. The higher the return and the shorter the time frame (waiting time), the better it looks as a potential investment.

It looks even better when everything is presented in nicely printed brochures. The temptation to dump all of one’s money into such a scheme is very strong. Unless you are a true psychic, nobody can predict how an investment will turn out. All investments are subject to risk. A recession can affect the investment returns. A political upheaval can affect it. A bad management can also affect the outcome. Therefore, any investment that you make is a gamble.

Your money, your responsibility

You are not invisible from a potential lost. What you can do is to not put all your money into one investment type only no matter how good it looks on paper. I was introduced to one investment scheme a few years ago that promised an average 20 percent return, annually. The temptation to put all of my money into this scheme was so great. I was already calculating the returns on the spot.

The returns looked so attractive and using the rule of 72, any money invested into the scheme will double-up in about four years. For example, if I invested 400K, the amount will become 800K in about four years time (72 ÷ 20 : 3.6 years). In another four years time, the money will grow to 1.6M. I was salivating at the prospect of seeing 1.6M in less than 10 years (about 8 years). Well, I will see the money if everything goes accordingly and there are no major events to upset the investment and ensure my money grows unimpeded.

I ended up investing some money (not 400K) and the returns has so far been whereabouts of 13 – 15 percent annually. Well, as with all other investments, past performance is not a guarantee of future performance. The return is still not bad but it is nowhere near the promised 20 percent return originally. The investment could have gone south and I could lose a good chunk of my life’s saving instead. Hence, to be prudent and to protect myself, investing an acceptable amount was wise. Hey, why expose myself to this kind of worry? I am not a high risk taker and I want to be able to sleep at night.

Lastly, it is wise to always bear in mind that we are not invisible to negative or bad circumstances. Good or bad things can happen that are beyond our control. There is nothing wrong in being extra cautious to avoid an unfortunate incident especially when it involves our life savings. Only invest an acceptable amount of money with considerations given to the risks involve. It is your money and therefore, it is your responsibility.

Jacquelyn is the co-author of the books “Teaching Your Kids About Money” and “Top 93 Personal Finance FAQs in Malaysia” with KC Lau. Jacquelyn is the pseudonym used by Amy Sipagal.

    1 Response to "You Are Not Invisible to Risk"

    • Peter Lim

      If that describes “Investing”, then how do the author describe “Speculating”?

      I find that what the author describes above is “Speculating”, and not “Investing” (or at least, not in accordance to Benjamin Graham’s definition).

      My mother’s definition is much easier and less confusing. She says, “Anything that can win money or lose money is Speculating (or Gambing).”

      I believe the word “Investing” should be used ONLY when it fulfills
      1) Thorough analysis
      2) Promises safety of Principal, and
      3) An adequate return (to beat inflation).

      Failing any or all the above conditions should be labelled “Speculation”.

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