Sit back and let investment do the work

It was the great Warren Buffet who stated the above and he knows more about financial risk than most people. He has also said on many occasions, “I don’t invest in things I don’t understand.”

So, when the term entrepreneur is mentioned many associate it with risk and of course there is risk in everything we do, or don’t do, but it doesn’t necessarily mean loss.

When I endeavour to ascertain a client’s risk profile one of the questions I ask is:

“When you think of the word “risk” which of the following words comes to mind first? Loss or Opportunity.”

Most answer “loss.”

Many investors want the high return without the risk. This is why many investors lose their money in investment “schemes.” They are often frantically seeking a high return from an investment where they believe there is little or no risk – basically they didn’t research the investment or have the knowledge or skill to objectively carry out the research. Again, as Warren says, “not knowing what you are doing.”

Having said that, investing in Term Deposits carries risk. A risk that many are not conscious of until they are made aware. The risk here is that there is no capital growth so the real value of the capital is depreciating every year due to inflation.

Once most people reach their 50’s their appetite for risk tends to diminish a little, if not a lot, but some feel more free, and with considerably more wisdom than they had in their 20’s, they decide to unleash their entrepreneurial spirit and take on more risk.  This can be in the context of commencing a business, which at this stage of life is higher risk because if things don’t work out you have little or no time left to rebuild your capital.

The key is to have a good knowledge of the industry your business will operate in and ensure you are not devoting too much of your capital in this venture.

Some entrepreneurs have stated that the qualities they have are somewhat different to investors. While they feel there is deep satisfaction and autonomy there can be a lot of stress and loss of work-life balance and the requirement of considerable energy and persistence. Entrepreneurship is about the day-to-day grind and focusing on the here and now.

I think it takes a certain type of personality and human traits for over 50’s to have the bravado for entrepreneurship, and those in that category with the knowledge and research, go and do it.

Investing is a much easier way to make money and again having done the research or having an adviser to guide you ensures there is a process and discipline attached to this course. Investing is about a long-term focus and ensuring you have plenty of diversification, not allocating your capital to one venture.

A good path to traverse is one that allows you to enjoy your later years with plenty of time for bridge, golf, bowls or whatever your interests are and to spend time with those whose company you enjoy. Sit back and let the investment income drop into the bank account and live.

 Brian Mooney is a Certified Financial Planner and Authorised Representative of Logiro. Email: brianm@logiro.com