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 risk more capital. This is a very simple fact but sometimes we forget. If you're 30 years old, you should be risking closer to 15,000$ rather than 2,000$. If you don't (because you're afraid of risking too much or you don't have the savings), then you have to scale down your target. Unfortunately, if you start late (say 50 years old), you have to risk more capital at an age where you shouldn't be taking a lot of risk in life. But I guess  there's no other choice. 

So, how much capital should you risk? Unfortunately, like it or not - the older you are, the more you have to risk!