Investment Blog

A contingency fund prepares you to take more risks. Sounds strange? Read ahead.

A friend of mine is an aggressive risk-taker in matters of investments. He was mentally prepared to invest more in equity when there would be a correction.

Came COVID-19 and shutdowns, the stock market crashed and presented an opportunity to invest at lower prices.

But my friend developed cold feet because he became highly uncertain about his income given there were not much savings.

Fast forward two years, now he is again mentally prepared to invest more in equity when markets will correct and I am sure this time he will not be afraid of doing so.

Why?

Because I introduced him to the concept of the contingency fund.

He has prepared a contingency fund (in FDs and ultra-short debt funds) equivalent to 12x monthly expenses.

He is now at peace with his expenses knowing well that the contingency fund will take care of any unexpected event.

This frees him to take additional risks with his remaining funds to take advantage of investment opportunities and generate wealth.

You see, you got to save first in risk-free/negligible-risk assets to invest aggressively in risky assets.

Have you prepared your contingency fund? If not, then this should be the first thing on your agenda.

Originally posted on LinkedIn: www.linkedin.com

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