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 a major factor when creating your investment plan. The second important factor relates to your income, as these two concepts are closely intertwined.
The differences in Incomes
Athletes’ incomes come in different shapes and sizes depending on their sport, location, and the 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. Many people have the image that investing will instantly make you a millionaire, but this is usually an illusion. There are moments when being in the right place at the right time, such as investing in Apple in the early 1990s, will change your fortunes, but these are exceptions.
Investing
Investing is more about making an informed guess on where to place your money to set up a steady income and guard against inflation. Some choices are safer than others, but no investment is completely secure. For anyone aiming for financial freedom, income is their most important weapon.
Using your income correctly
If your income is not properly utilized or is consumed by debt repayments, your hands are essentially tied. Assuming you start with a salary and no assets, you need to organize your salary appropriately. For example, open additional accounts besides your primary bank account—one for an investment fund where a fixed percentage of your income is transferred, and the second for an emergency fund, as life is unpredictable.
Dividing your income
Next, decide what proportion of your income to set aside for investments, typically around 15% to start. There are many investment options available: index funds, mutual funds, stocks, annuities, real estate, REITs, bonds, and more. It’s essential to do your own research or consult a professional. Focus on investments you understand and believe in. Never put all your eggs in one basket—spread your investments to mitigate risk.
Setting goals
Another critical aspect is setting goals. If you invest in cryptocurrency just because everyone is, without a specific goal, you may never cash out. For example, setting a goal like “I will cash out once my return reaches $15,000” gives clarity and focus. This way, you know when to cash out, provided the investment is profitable.
In short, your income (salary plus other revenue sources) defines your options. Start by investing safely to build wealth, which will take time. The relationship between income and investment choices is vital, so allocate your income wisely. Understand that income is not infinite, money for investment comes after savings, and setting goals with a timeline is essential.
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].