This is one of the biggest decisions we actually get to make in life. Sometimes, it is conscious and we actually choose, other times, it is subconscious and we simply slip into a life of work, routine and didn’t even realise it happened.
Having more of both time and money is possible, but requires a different choice, and that is not swapping your time for dollars. Instead, going down the path of investing – having your money work for you, instead of your working for money.
For some, this is a familiar path. One that may have been successful, while for others, significantly less successful, perhaps even disastrous…
If investing is something you have tried in the past, and it hasn’t worked for you, then please take a few moments to look at this approach instead, which will most probably address and perhaps fix the areas that didn’t work for you.
The three areas that we use to evaluate an investment, and its overall success, include the level of return (importantly, this is not the only thing), the time frame and the risks. As a trio, these provide a rock solid base to build from.
All Returns are not the same…
Many investors can fall into the trap of chasing returns, thinking higher return equals a better investment, but this is not necessarily so. Return may be “sliced up” and evaluated based on a few other measures.
What is the volatility of return – in other words, is there a level of consistency in return or was it a one hit wonder. Regular and consistent returns tend to provide a level of stability and comfort for many investors.
How did the time horizon match your needs?
Some investments have a longer time line than others ie a longer term view is required, in order for the strategy to work for you, while some are very short term. Matching your investment choice to your actual needs is critical to avoid frustration and disappointment. For example, regular monthly income may be your need, and a long term share portfolio with dividends is unlikely to deliver what you are after. Equally, you may wish to have a passive income, in which case, day trading is unlikely to meet and match your needs!
Risks do vary
Just like returns, all risks are not the same either! Any investment requires an exposure to a level of risk – some risks being higher than others. The skill as an investor is selecting a level of risk that they are comfortable with and then identifying the type of return which goes along with that.
Just as important is knowing how defined the level of risk actually is. After all, if you made a decision based on a risk of say 5% and the actual risk was 30% you would almost certainly be pretty unhappy! As such, evaluating risk is one of, if not the most important elements in an investment decision.
Is there a magic pill strategy?
Well that really depends on what you are after but no would be the answer.
However, One strategy that ticks a lot of the investor boxes, is Covered Calls. This is a largely passive strategy, where returns are regular and in most cases, monthly.
As you learn more on how to apply this strategy, returns can be scaled up or down, to match your risk appetite and income needs, while risk in itself can be managed to a very high degree. When we talk about being managed to a high degree, we are talking the potential to limit your potential losses to a small and guaranteed maximum drawdown, and very few investments in the real world offer this level of protection. This is achieved using put options to help turn a covered call trade into a collar.
So did you want more time, more income, or maybe both?
If you were after more time back and more income opportunity, this may well be a strategy for you to explore further and enjoy its twin benefits of regular income and managed risk, working for you in a passive, low time input way.