Personal Finance and Be Money smart! – Part VI: Invest and know the risks of investments

Key takeaways:

  • all investments come with risks;
  • knowing the risk is essential for personal wealth;
  • time can be your good friend in investment, so start early.

When I was young, I thought investment was hard and it required specialised knowledge or a fancy degree to do. So, I didn’t pay much attention to investment. At that time, investment was equal to buying shares in the share market for me, because my college mates were crazy about it. They told me they could made millions of dollars by trading shares. Since I knew nothing about trading shares, I thought it was difficult to do and I would do it when I have time after my college. Then, I got busy with my life….

I was wrong on two things. First, investment is easy if you know the fundamentals. Second, you don’t need a lot of time to learn financial investments. Instead, you just need to be patient because time is your best friend in investment.

Investment is not hard if you know what you are doing (Photo by on

If you have followed my blog for some time, then in a previous series of posts, I’ve discussed those fundamentals in personal finance. These fundamentals apply to investment in personal finance, so I don’t plan to repeat them here. I’d focus on investment knowledge and risk assessment in this post.

Do you need to know a lot to invest? Well, it depends on what you want to do. For most people, the purpose of investment is mostly for retirement. In the US, there is 401K scheme and in Australia, there is a compulsory superannuation scheme. These retirement fund schemes would take your money from your monthly salary (before you see it!) and invest in funds of your choice. When you reach the retirement age, then you can start enjoying your retirement money. Most financial advisors would tell you that the monthly contribution is not enough and you need to have your own investment portfolio, if you want to have a ‘rosier’ retirement.

If you are going to invest your own money for retirement, then what do you need to do? Here the risk factor will kick in because we are all afraid of losing that money and we don’t think we have enough knowledge for investment.

High return always comes with a high risk, so consider the risk before you take actions (Photo by Andrea Piacquadio on

If you buy shares because your friends told you so, then the risk of losing money is high. According to a statistics I came across a few years ago, 80% of ‘retail investors’ in the share market don’t make money! If you don’t know the share market and you buy shares, then you may just fall within the 80% population; the risk is high.

On the low-risk spectrum of investment, you can keep cash, keep term deposits, buy government bonds or even buy gold. However, the return of these investment options would be low enough and the return would be ‘eaten’ by inflation over time. Nevertheless, cash is the king and you only appreciate that when the market melts down such as GFC in 2008 and COVID in 2020.

The science of portfolio management in finance is all about maximising long-term return by minimising risks. If you don’t have a fancy finance degree in portfolio optimisation, then what’s your best option to go about personal investment and wealth creation? My suggestion is that you start early and you buy the whole market.

Lucky double-yolk egg! You may get lucky, but that alone can’t make your investment successful.

I gave my research team a quick talk on investment last month. My research team members are all young guns at the age of 20-something. In a 10-min talk, I only showed them one chart I took from Vanguard. The chart below shows that if I invested $10,000 in 1990 when I was in the college and did nothing afterwards (leaving the money in the portfolio), by 2020 (which is 30 yrs later), the portfolio will grow to $128,000 if I bought the Australian market, and $202,000 if I bought the US share market. The growth is about 10-20 times in 30 years by doing nothing; absolutely nothing! Time, again, is your best friend in personal finance and investment.

This chart is enough to show you why an ordinary citizen can become a millionaire by doing v little in investment (screen shot from Vanguard’s Volatility Index charting tool).

Do you need a fancy finance degree to understand that chart I just showed you? No, everyone can understand that! The risk of losing money after 30-yr investment? Well, there were quite a number of big ‘dips’ among those curves from 1990 to 2020 but if you just ignore them and look at the start/finish points of your investment time line, then those ‘dips’ were actually nothing! Wow….. you are literally not affect by any economic downturn at all. How amazing!

Knowing the risk of investments is essential for your personal finance. If you know the risk of different investment vehicles, then you should have been very excited when the market melted down in March 2020; time to pick up bargains! If you know the risk well, then you don’t need to pay too much attention on short-term market movements. If you know the risk well, then you know what to invest and you know that time is the most powerful tool in wealth creation. You don’t need a finance degree to make handsome investment return for your retirement. All you need is knowing the risk of investments and time to grow your investment.

Be patient. Big fish will come to you soon. ^_^

So, start investing when you are young. If my father invested $10,000 on my behalf when I was born (1970), then by now (2020, some 50 yrs later), I have got $1.2~$2.5 million in my pocket without doing anything. I would have become a millionaire by the age of 50 by doing nothing. My father should have done that…… Let me call my Dad and ask him why he didn’t do that. ^_<

Dr. C. Richard Wu @

(Note: I didn’t take any incentives when writing this post. I’m neutral. ^_^)

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