When it comes to managing money, there are many different approaches people take. Likewise, there are a variety of different levels of knowledge people have on ways to manage money in general, and the myriad choices that people have.
Some people are very risk averse, and prefer to keep money “under the mattress”, so to speak. For these folks, safety might be the highest order priority over the potential for growth of principal. Earning 1% per year with very little chance of losing anything might sound better to some of these folks than putting money into vehicles that could potentially earn more – with some risk, of course!
Here is the thing though – capital preservation has its place, but should it be the primary strategy at every point in life? I would suggest no. When older or closer to retirement age, it makes more sense to think about sacrificing potential returns for safety.
However, when younger, it’s not always the case that we want to limit potential returns in the name of avoiding risk. There is something to be said about the time value of money, and how compounding can make a big difference in the ultimate nest egg one can accumulate. Rates of return really do matter, and can make the difference between not having enough, and having more than enough for a spectacular retirement.
Of course, those extra returns don’t happen magically. There is some element of risk that needs to happen in order to earn higher than those “under the mattress” returns, and there are a variety of different avenues people can take. Actually, even in the absence of chasing returns, there is diverse set of money management tools available as well.
People can put money in stocks, which is of course where much of our 401(k) money gets funneled. It’s almost a default choice for many who want to allocate their assets toward growth. Another choice is bonds, which can be a part of some portfolios as well. A big part of many people’s balance sheets is also real estate. While this can show up on the liability side due to a mortgage (and additional expected future expenses), the market value of a home can increase over time and can represent an asset as well.
There are other, lesser known vehicles for money allocation. One of these would be options. There are a variety of options people can buy, and one of these is trading binary options. These options are “binary” in nature, meaning that there is either a payout or there isn’t. With the risk of no payout, the payout could conversely be something that is potentially quite alluring.