​​High Risk vs. Low Risk Investing (The Reality)

Life isn’t just about target date funds and index funds. Lots of people understand that, logically, they should create a well-diversified portfolio of low-cost funds. But they also want to have fun investing. sure, use a small part of your portfolio for “high risk” investing—but treat it as fun money, not as money you need.

“Fun Money” Allocation

I set aside about 10 percent of my portfolio for fun money, which includes particular stocks I like, know, and use. Companies like Amazon that focus on customer service, sector funds that let me focus on particular industries, and even angel investing, which is personal investing for private ultra-early-stage companies. All of these are very-high-risk investments, and they’re funded by just-for-fun money that I can afford to lose. Still, there is the potential for great returns. If you have the rest of your portfolio set up and still have money left over, be smart about it, but invest a little in whatever you want.

Young Ramit’s $297,754 Lesson

When you were fifteen, a lot of your dads were teaching you how to drive, showing you how to use a razor, or throwing you a quinceañera. My dad told me to open a Roth IRA.

A fifteen-year-old is too young to open a Roth IRA, so my dad and I opened a “custodial” account together at E-Trade. I had a few thousand bucks from a few high school jobs I worked—pizza maker, soccer referee, and sales guy for an internet company—so I started looking for what to invest in.

For lil’ gangster Ramit, this was about as exciting as it got! So I started doing my research, which consisted of:

  • Looking up which stocks went really high and really low (because I thought “Higher risk = higher reward, and I’m young, so I can stand high risk so I get high reward!!” God, I hate myself.)
  • Restricting it to tech (“Because I understand technology!”)
  • Reading magazines like the Industry Standard, which breathlessly hyped…

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