My journey towards financial freedom has taught me a number of things. One of the key lessons I’ve learnt is to take small risks in life with my money and to be less attached to it. What do I mean by this?

Life is full of risks. When we get up in the morning, do we know if we’re going to be hit by a bus (*touch wood*) or to be able to get home safe and sound? In our quest for financial freedom, we are seeking to live within our means, to save and invest, to grow and protect our means.

Risks and Opportunities (Different Sides of the Same Coin?)

The saving and especially investing part of the financial freedom journey entails risks. When you take some of your savings and invest it in the stock market. You risk the amount being invested becoming zero if the company collapses due to fraud, irregularities or mis-management. You also take a risk (or opportunity) that the amount being invested grows by more than the low 0.1% to 0.5% interest that is being paid on savings and even fixed deposits.

Opportunity is the flip side of risk. To be safe, avoiding risks and parking your savings in fixed deposits, treasury bills or savings is not a wrong strategy. It is a strategy that can work if you keep on working and conscientiously saving until you have enough and have hit your own goal of  financial freedom (e.g. to have $1 million investible savings by certain age).

I too am relying on this strategy, except that the amount I park in fixed deposits, treasury bills and savings is lower because I invest (and also speculate) in equities for the higher return. In return, I have to accept the higher risks associated with investing in shares.

Take for example my speculative punt on UOB, I bought 1 lot at $18.72 and it went downhill to low $18 before rebounding to the current $19.50 levels. This is a net profit (after brokerage fees etc.) of 3.44% for holding the share for 1 month plus. Even if I parked my funds in a fixed deposit for 1 year I cannot achieve 3.44% returns.

It is risky in that if I did not have holding power and if the US stock market had tanked, I’ll probably be stuck in UOB. But I took a risk and believed that intrinsically, UOB could hit $20 within the next few months and thus I bought when its price dipped a lot from $19+ levels to $18.72.

This example doesn’t show that I’m a good investor or that I can pick correct stock picks. I am just lucky but I am also taking the risk knowing how the price of UOB moves around the $18-$19 levels based on current market conditions.

Risk and Rewards

So risk taking can be rewarding. But if you notice, this one punt is not my entire savings. My entire investible capital is never 100% invested in one asset class or another, I do set limits on how much of my investible savings can be put in equities.

For the time being, I’ve parked some of it in equities because I think the returns will exceed putting them in the bank. Also, I will need to raise money for the purchase of my new place in May so will need to liquidate a significant amount of it before May. The stock market is liquid enough to obtain above fixed deposits returns until then. Of course, these returns are totally not guaranteed and one needs to time the exit since cash would be required then.

Learning more about financial freedom has made me less risk adverse and more willing to take risks within my own knowledge, experience and risk tolerance.

I’ve paid some tuition fees to the stock market and learn more about how to take small gains here and there to beat the fixed deposits returns.

What calculated risks will you consider in your quest towards financial freedom?

Share with Panzer in the comments section.

Be well and prosper.

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