On... How Much to Risk?
How much capital should we risk? That depends on how much time we have. Let's say we aim to achieve a million dollars ( by age 76 ) and we use 10% CAGR as an assumption for our rate of return, we can take a look at some scenarios to give us an idea. The below chart shows 3 scenarios. Red bars ( starts investing with 90,000$ at age 50 ), Yellow bars ( starts investing with 15,000$ at age 30 ) and Blue bars ( starts investing with 2,000$ at age 10 ). Note that to simplify the maths, a once off capital is used. In real life, you probably would add to your investments as you age. I think it doesn't come as a surprise that the younger you start, the less capital you need to reach a million dollars; and the older you start, the more capital you have to risk. And that's a conundrum because the older people get, the less risk averse they become. For example, if you're not starting at 10 years old ( and it's safe to say most people don't ), you have no choice but to r...