by Bra5c0 | Jan 29, 2024 | Building Wealth
When people receive their end-of-year bonus, one of the most common questions they ask is how to use that extra income. It can be exciting to see this additional money, but it is crucial to consider your needs versus your wants. While you may be eager to indulge your...Investable assets refer to the liquid or near-liquid resources an individual or organization can readily access to fund investments. These assets include cash, savings accounts, money market funds, and easily tradable securities. Additionally, retirement plans such as 401(k)s and IRAs, though not immediately liquid, are crucial components of an investment portfolio and are considered in long-term investment strategies. Evaluating current assets helps determine available capital, assess financial stability, and allocate resources. Properly accounting for these assets ensures that investment plans are both realistic and aligned with financial goals.
Annual family expenses refer to the total yearly costs incurred by a household, including housing, utilities, groceries, education, healthcare, and discretionary spending. Accurately estimating these expenses is essential for determining the amount of disposable income available for investments.
Risk tolerance refers to an individual’s capacity and willingness to endure the potential loss of their investment’s value. It is influenced by various factors, including financial situation, investment goals, time horizon, and personal comfort with market volatility. Investors with a high-risk tolerance are typically more comfortable with significant fluctuations in their investment value and are willing to take on higher-risk investments for the possibility of greater returns. Those with low-risk tolerance prefer stable and predictable returns, opting for safer, lower-yield investments. Understanding one’s risk tolerance is crucial for creating an investment portfolio that aligns with their financial goals and psychological comfort. This assessment helps in avoiding panic during market downturns and in maintaining a long-term investment strategy.
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