Can one learn to take risk?

jdp · 01-18-2008, 10:17 AM

If you are very frugal or have been carefully working toward certain financial goals, how do you break that habit and learn to take a little more risk.

I'd like to invest in something other than my IRA and high-yield savings and CDs but I can't bring myself to do it.

Any advice?

I thought maybe taking a small windfall and pretending with myself that I never had it and that way if I mess up and lose it I won't feel so bad.

Megan · 01-18-2008, 10:19 AM

I have to admit, I also struggle with this. I have branched out into mutual funds, but that's as risky as I've gotten.

Gootsy · 01-18-2008, 10:45 AM

Here're my 2 cents.

I believe the best way is gradually.

A little bit at a time, so that you can slowly build up your risk tolerance without losing your mind should things turn sour. Eventually, if things go according to plan, you should become 'numbish' to the bad fluctuations.

Never overextend yourself also, and always think about the big picture.

Just comes with experience I guess.

rstlne · 01-18-2008, 01:46 PM

Through education. Read up on the history of the financial markets. Then you'll discover that even though there have been severe downturns, over the long haul, returns have been and will be positive.

72Tiger · 01-18-2008, 02:35 PM

I have struggled with this, and am leaning towards investing in mutual funds that are indexed off of the stock exchanges. They are low fee, and although there is risk, if you leave them alone, there is an extremely high chance you will make money on them. What finally pushed me over to the edge in thinking they are ok, is the thought that if the major stock exchanges become worthless, there are likely to be problems afoot that even no-risk investment money can't help against.

Also, doing calculations based on the time value of money for no risk investments vs moderate risk investments can be an eye opener.

1littlething · 01-18-2008, 03:03 PM

Quote:

Originally Posted by Gootsy

Here're my 2 cents.

I believe the best way is gradually.

A little bit at a time, so that you can slowly build up your risk tolerance without losing your mind should things turn sour. Eventually, if things go according to plan, you should become 'numbish' to the bad fluctuations.

Never overextend yourself also, and always think about the big picture.

Just comes with experience I guess.

I have to agree with this. Sometimes it's too much to try to jump in all at once. Slowly build up to larger investment risks.

Xin Lu · 01-18-2008, 04:37 PM

this is my personal experience but I found that investing in mutual funds and exchange traded funds are just much easier than going after individual stocks. It takes time to watch individual stocks and if you have a job full time doing other stuff it's hard to move quickly on events. By buying funds in stocks you are taking on the risks of investing in stocks, but it is a bit more spread out than just putting all your money in one stock. Some mutual funds can be very aggressive and you may be taking on a lot of risk. So if you're comfortable in investing in stock funds then I think that is enough.

rolltimer · 01-19-2008, 08:43 AM

Sure. You can build your risk tolerance without losing your nerve. As others have said, take it slow. Shoot for a long, investing horizon--don't try to do it all at once. Starting with index funds, as someone suggested, is a great way to dip your toes in the market. Vanguard has one called the Total Stock Market Index Fund and it tracks, as it says, the total stock market or, in actuality, the Wilshire 5000 index which is about as close to the total market as you can get.

Before you start investing in higher risk ventures, make sure you have an emergency fund of 3 to 6 months expenses, minimum. Doesn't hurt to have a year or more saved up especially if you anticipate a major purchase coming up such as buying a new computer, household appliances, car, or down payment on a home. Next look at paying down or paying off debt. I carry no debt at all and intend to keep it that way.

You mentioned having an IRA but you didn't give any details about it. Check to see if you can move some or all of it into something like the Vanguard Total Stock Market Index Fund. I would suggest first setting up an IRA within Vanguard and rolling over some or all of your current IRA into one of Vanguard's money market funds. From there you can transfer into the Total Stock Market Index Fund or one of their other excellent funds. You can set up automatic transfers to take advantage of dollar cost averaging. As with most mutual fund companies after your account is open, you can set it up to manage it online.

Don't worry about checking it every day or watching the churn and burn of the market analysts. At most, check it once a month but just checking at the end of every quarter should be sufficient.

jdp · 01-21-2008, 07:28 AM

My IRA is a SimplePlan through work sitting in American Funds, split various ways. If I roll over to a Vanguard IRA there's no penalty, correct? But then if I start moving $ to the Vanguard Total Stock Market Index Fund you mentioned would there be? Or is that part of the IRA/ an IRA option?

rolltimer · 01-21-2008, 08:11 AM

Quote:

Originally Posted by jdp

My IRA is a SimplePlan through work sitting in American Funds, split various ways. If I roll over to a Vanguard IRA there's no penalty, correct? But then if I start moving $ to the Vanguard Total Stock Market Index Fund you mentioned would there be? Or is that part of the IRA/ an IRA option?

I'm not a financial adviser and anything I suggest is based on my own personal experience. I mentioned Vanguard because I have dealt with them for close to 20 years, they're a large fund family, and their funds expenses are low compared to other fund families. Since your IRA is through a plan with your employer, you should start by getting answers from the IRA's administrator as to what you can and cannot do with it. You may not be able to move it outside of what is offered within their plan but you may be able to find something similar to what Vanguard offers. If you rollover directly into an IRA, there should be no penalty. What I was suggesting in my previous post in regard to moving money from a Vanguard money market account to the Vanguard Total Stock Market Index Fund was to do this all inside an IRA account. Assuming the amount of money you have meets the minimum amount required for a particular fund, it is possible to have money in several different funds within the one IRA account.

01-18-2008, 10:17 AM	#1
jdp Senior Member Join Date: Jan 2008 Posts: 204 Reputation: (24)	Can one learn to take risk? If you are very frugal or have been carefully working toward certain financial goals, how do you break that habit and learn to take a little more risk. I'd like to invest in something other than my IRA and high-yield savings and CDs but I can't bring myself to do it. Any advice? I thought maybe taking a small windfall and pretending with myself that I never had it and that way if I mess up and lose it I won't feel so bad.

01-18-2008, 10:19 AM	#2
Megan Senior Member Join Date: Dec 2007 Posts: 308 Reputation: (63)	I have to admit, I also struggle with this. I have branched out into mutual funds, but that's as risky as I've gotten. __________________ Counting My Pennies

01-18-2008, 04:37 PM	#7
Xin Lu Wise Bread Blogger Join Date: Jan 2008 Posts: 238 Reputation: (40)	this is my personal experience but I found that investing in mutual funds and exchange traded funds are just much easier than going after individual stocks. It takes time to watch individual stocks and if you have a job full time doing other stuff it's hard to move quickly on events. By buying funds in stocks you are taking on the risks of investing in stocks, but it is a bit more spread out than just putting all your money in one stock. Some mutual funds can be very aggressive and you may be taking on a lot of risk. So if you're comfortable in investing in stock funds then I think that is enough. __________________ Blogs I Write: The Baglady @ http://baglady.dreamhosters.com Wise Bread @ http://wisebread.com/xin-lu

01-19-2008, 08:43 AM	#8
rolltimer Senior Member Join Date: Dec 2007 Location: Alabama Posts: 131 Reputation: (24)	Upping the Risk Tolerance Factor in Investing Sure. You can build your risk tolerance without losing your nerve. As others have said, take it slow. Shoot for a long, investing horizon--don't try to do it all at once. Starting with index funds, as someone suggested, is a great way to dip your toes in the market. Vanguard has one called the Total Stock Market Index Fund and it tracks, as it says, the total stock market or, in actuality, the Wilshire 5000 index which is about as close to the total market as you can get. Before you start investing in higher risk ventures, make sure you have an emergency fund of 3 to 6 months expenses, minimum. Doesn't hurt to have a year or more saved up especially if you anticipate a major purchase coming up such as buying a new computer, household appliances, car, or down payment on a home. Next look at paying down or paying off debt. I carry no debt at all and intend to keep it that way. You mentioned having an IRA but you didn't give any details about it. Check to see if you can move some or all of it into something like the Vanguard Total Stock Market Index Fund. I would suggest first setting up an IRA within Vanguard and rolling over some or all of your current IRA into one of Vanguard's money market funds. From there you can transfer into the Total Stock Market Index Fund or one of their other excellent funds. You can set up automatic transfers to take advantage of dollar cost averaging. As with most mutual fund companies after your account is open, you can set it up to manage it online. Don't worry about checking it every day or watching the churn and burn of the market analysts. At most, check it once a month but just checking at the end of every quarter should be sufficient.

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01-18-2008, 10:45 AM	#3
Gootsy Senior Member Join Date: Jan 2008 Posts: 252 Reputation: (24)	Here're my 2 cents. I believe the best way is gradually. A little bit at a time, so that you can slowly build up your risk tolerance without losing your mind should things turn sour. Eventually, if things go according to plan, you should become 'numbish' to the bad fluctuations. Never overextend yourself also, and always think about the big picture. Just comes with experience I guess.

01-18-2008, 01:46 PM	#4
rstlne Senior Member Join Date: Jan 2008 Location: New Jersey Posts: 364 Reputation: (115)	Through education. Read up on the history of the financial markets. Then you'll discover that even though there have been severe downturns, over the long haul, returns have been and will be positive.

01-18-2008, 02:35 PM	#5
72Tiger Senior Member Join Date: Jan 2008 Location: Knoxville, TN Posts: 296 Reputation: (38)	I have struggled with this, and am leaning towards investing in mutual funds that are indexed off of the stock exchanges. They are low fee, and although there is risk, if you leave them alone, there is an extremely high chance you will make money on them. What finally pushed me over to the edge in thinking they are ok, is the thought that if the major stock exchanges become worthless, there are likely to be problems afoot that even no-risk investment money can't help against. Also, doing calculations based on the time value of money for no risk investments vs moderate risk investments can be an eye opener.

01-21-2008, 07:28 AM	#9
jdp Senior Member Join Date: Jan 2008 Posts: 204 Reputation: (24)	My IRA is a SimplePlan through work sitting in American Funds, split various ways. If I roll over to a Vanguard IRA there's no penalty, correct? But then if I start moving $ to the Vanguard Total Stock Market Index Fund you mentioned would there be? Or is that part of the IRA/ an IRA option?