Most savers are perfectly content with only risking their money in traditional investments such as mutual funds. But what if you enjoy and have a knack for the nontraditional investing?
The 10% Rule
Unless you do invest for a living, then I recommend you don’t invest more than you can afford to lose in nontraditional investments. It’s reasonable for that amount not to exceed 10% of your net worth. For example, if you’re net worth is $200,000, invest $20,000 or less. Don’t assume you should invest 10%, you just shouldn’t exceed 10%. 0% is fine — as is 3%.
Examples of Investments
Invest only in what YOU know. For example, let’s say you grew up working and learning in a restaurant your parents owned and managed. An acquaintance you trust asks you to invest $20,000 in their new restaurant. You did your research, feel confident about it, understand it — so you might make this deal!
Refrain from investing in nontraditional investments that others know well. For example, my aunt knows the horse business very well, but I do not. Let’s say she approached me (she didn’t, but let’s pretend she did) about co-investing with her in a young horse with potential. Steer away. Refrain from making this investment. For you, horses are unknown territory.
By keeping to this rule, you’ll enjoy the art of investing more and lower your risk.