By Iacovos Iacovides, APC Sports
Last week we explored the concept of Risk Appetite and its three basic descriptive categories: risk-averse, risk-seeking and risk neutral. Understanding your Risk Appetite or Risk Tolerance is one of the major factors that you have to take into account when creating your investment plan. The second important factor relates to your income; these two concepts are closely intertwined.
The incomes of athletes come in different shapes and sizes depending on their sport, location and the said athlete’s talent and skills. As a result, not everyone can afford to buy shares of Liverpool F.C like LeBron James, or set up their own whisky distillery. Most people have conjured up this image of how investing will instantaneously and effortlessly make you a millionaire; in most cases this is an illusion. There are those moments that being in the right place at the right time – such as investing in Apple in the early 1990s – will change your fortunes for good, but these instances are the exception, not the rule.
Investing is more about making an informed guess on where to place your money in order to try and set up for yourself a steady flow of income and guard your money against inflation. Some choices are safer than others, but there is no such thing as a completely safe and secure investment. For anyone trying to achieve financial freedom, their income is the most important weapon they have in their arsenal.
If your income is not properly utilized or is entangled in debt repayments, then your hands are basically tied. Assuming that you start with a salary and no assets, you first need to organize your salary appropriately. For example, apart from your primary bank account you can open additional accounts—the first being an investment fund where a fixed percentage of your income is transferred to. The second, an emergency fund since you never know what twist of fate is lurking around the corner.
Then, you need to decide what proportion of your income you wish to set aside for investments – usually something like 15% at first should suffice. As far as options are concerned, there are numerous out there: index funds, mutual funds, single stocks, fixed annuities, real estate, real estate investment trusts, bonds, and so on. You have to do your own research and/or consult a professional and it would be better to focus on what you understand and believe in the most; after all it’s your money. However, make sure you never put all your eggs in one basket. Spread your investments in order to spread the risk as well.
Another important aspect of the equation is to set goals. If you just invest in cryptocurrency because everyone is, without a specific goal such as: ‘I will cash out once my return reaches $15,000’, then it is likely that you will never cash out because you will always go for more and in the end, you might even lose your initial capital. The best strategy is to set specific goals and even define them as short-term, medium-term and long-term. This way you pinpoint the exact moment that you will cash out (provided your investment proves profitable).
In short, your income (salary plus any other source of revenue) defines your options. You should start by investing safely in order to build up your wealth, which will most likely take some time. The relationship between your income and investment choices is a vital one and therefore, you need to work out how to allocate your income by understanding that a) it is not infinite b) money for investment come after savings c) you need to set goals with a timeframe.
For more information on the relationship between income and investment and how it affects the athletes’ investment choices, you can contact us at [email protected].