In his book ‘A random walk down Wall Street’ Burton G. Malkiel makes an interesting point on the fact that your psychological makeup will have a big influence on the risk you are willing to assume.
He mentions one investment advisor that explains how you could look at your strategy when playing Monopoly to help you understand what type of securities would fit your temperament. Do you prefer to try and quickly establish a position as the owner of the orange part of the board? Taking advantage of the steady but moderate income of St. James Place, Tennessee Avenue and New York Avenue or would you risk sacrificing all your net worth to try and build hotels on Boardwalk and Park Place; knowing that you would probably run out of cash but that you could really hit it big and win the whole game if luck turned your way?
Remember, before allocating hard earned money to securities, you need to understand what part of your total net worth you can afford to invest, what your expectations are and what your risk tolerance is.
As J. Kenfield Morley said: ‘In investing money, the amount of interest you want should depend on whether you want to eat well or sleep well…’.
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