Today we are discussing how to manage your money wisely, and the risks associated with investing. We are focused on a specific case study of a recent graduate who has some cash in their 401k, Roth IRA and taxable investment account.
The first thing that stands out is that this individual does not have an emergency fund yet. This is quite concerning as an emergency fund is vitally important for any financial plan, especially when starting out in life. Without an emergency fund, our new graduate is left vulnerable to unexpected costs that could potentially derail their entire financial plan.
Another issue here is the risk taking behavior of our graduate. He invested in Tesla stock, which is much riskier than typical investments such as bonds and mutual funds. While it’s possible that investing in Tesla can be very lucrative, the probability of attaining these large returns within one to three years is quite low. It would be much wiser to use this money towards building up an emergency fund or expanding their retirement savings instead.
Finally, once their emergency fund and retirement has some more funding, he can look at investing in Tesla again or other stocks they find interesting. It’s important to make sure you understand the risks associated with individual stocks before you invest in them – no matter how exciting they may seem!
At FitBUX we want our listeners to make smart decisions about managing their money and taking appropriate risks so they can reach their financial goals. We invite you to join us for more great content on investing and personal finance!