Chapter Content
Okay, so let's talk about long-term investments, right? I mean, that's the pillar we're focusing on here. And you always hear investment advisors talking about risk-adjusted returns. Basically, that means they're looking at, like, what you could potentially earn on average, but they're also considering how risky the investment is.
Think about, you know, start-ups. They might offer, like, crazy returns, right? Ten times, maybe even a hundred times your money! But, uh, let's be real, most of them go belly up. So, while the potential reward is huge, the risk is also super high. That’s why the risk-adjusted return for start-up investing is usually closer to, you know, just investing in the stock market in general.
Now, this whole risk adjustment thing is important when you're thinking about where to put your money for the long haul. But, there’s something that it kind of misses, you know? Like, it's not just about the risk and the reward.
You gotta think about the hassle. Like, seriously. Choosing the right investments is about finding that sweet spot where you get good returns, and those returns are adjusted for both the risk, *and* the amount of, uh, work you gotta put in.
I heard this concept from a guy named Mitchell Baldridge, a CPA and writer. He calls it “return on hassle.” It’s basically the idea that your time and energy are part of the equation. So, like, let's say you find a real estate deal, a rental property, that's supposedly gonna give you a 10% return every year. Sounds awesome, right? But what if you have to spend, like, ten hours every weekend driving over there, fixing stuff, dealing with tenants… ugh! That 10% might not seem so great anymore, you know?
If you could get, like, a 7% return just by buying and holding some index funds, and, like, literally doing *nothing*, you gotta weigh that against the real estate thing. So if the higher return is *worth* all the extra time and energy, then, yeah, maybe it's a good move. But if not, you should probably just pass.
I saw this cool chart that kind of breaks this down. It maps different long-term investments based on how risky and difficult they are and what their expected returns are.
Starting your own business is always up there, on the high-risk, high-hassle, high-reward end of things. The idea of being your own boss is really appealing, I get it. You're betting on yourself! But, uh, most businesses fail, like, within the first ten years. So, you know, maybe look at less risky ways to be an entrepreneur… like, some kind of de-risked pathway, you know?
For most people, that sweet spot is gonna be somewhere in the middle. Something like buying and holding some low-cost, diversified index funds is gonna give you the best bang for your buck, *and* the least amount of, you know, stress.
So, yeah, before you jump into anything that takes up a lot of time, like, individual stocks or rental properties, make sure you really understand the risks involved, and that you have a good, rational, understanding of the, uh, “edge” you think you have over everyone else. You know? Otherwise, it might just be better to keep it simple.