02 - Spicy Ramen and Risk

Budgeting For Bacon

Eating a big bowl of spicy ramen is a risk to your taste buds (and your pride!), but it’s a risk that has the potential for gain in terms of a great meal. Investing in the stock market is a lot like eating spicy ramen. On this second episode of the Budgeting for Bacon podcast, Kate is joined by her husband, Justin Delamare and together the two singe their tastebuds, all in an effort to tell their listeners about the risks and rewards of investing.

Eating spicy ramen is not a safe bet, but drinking milk right afterwards makes the risk a little more worth taking. In the same way, there are investing options out there that are more risk-heavy and those that are low-risk. During this episode, Kate and Justin chose to wait to drink their milk until five minutes after they have eaten the spicy ramen, making it more of a risk. Using this illustration, Kate shares how there are high-risk and low-risk investments. Some low-risks investments include investing in US Treasury bonds, certificates of deposit, or government money market accounts. High-risk investments include crypto assets, real estate, or IPOs. Knowing your risk tolerance when it comes to investing is important before you even meet with a financial advisor. Luckily there are tools out there like Investopedia to help you get comfortable with investing without risking any real money.

Kate wraps up the episode (and cools off her tastebuds!) by telling listeners about the benefits of diversifying your investment portfolio using mutual funds or a wide variety of stocks. Diversification lowers your risk over the long term, and that’s how you bring home the bacon.

You can learn more about this podcast by clicking here. Join Kate next time as she explores Mac and Cheese & Poor Man’s Budgeting.

KEY TOPICS:

KATE, JUSTIN, & SPICY RAMEN

01:24 – Justin describes his typical tolerance for spicy food.

02:51 – Kate describes how in most cases when it comes to choosing between being owing $50 or flipping a coin to either los $100 or nothing, people would choose the coin flip and risk the loss to avoid losing their money.

04:34 – Kate and Justin try their spicy ramen, to mixed results.

SPICEY RAMEN & RISK

12:22 – Risk is defined as having the possibility of losing some or all of your investment. Like Kate and Justin’s spicy ramen challenge, the risk of eating the spicy ramen is losing a bit of pride and affecting their tastebuds—there’s a chance of loss in the stock market, but also the possibility to gain.

13:25 – After doing the spicy ramen challenge, Justin says his risk tolerance for investing $100,000 would be a medium level of risk.

14:34 – A riskless way to try your hand at investing is by using Investopedia Stock Simulator to invest $100,000 of virtual money into the stock market.

16:44 – Investopedia takes that risk element out of investing. When Kate and Justin were looking at the spicy ramen in their bowls, they were already scared of what might happen. Investopedia takes that coin toss risk of loss out of investing, and helps you get familiar with all the terminology that comes along with investing.

18:03 – Knowing your risk tolerance is important for investing. The more you invest, the higher the returns, but the also the bigger the potential for loss. Knowing where you stand when it comes to your risk profile is important before you even go to a financial advisor.

18:58 – There are no truly risk-free investments, but there are investments that are much less risky. In Kate and Justin’s case with the spicy ramen, milk was a safe investment.

19:20 – Safer investments include US Treasury bonds, certificates of deposit, or government money market accounts.

19:55 – In terms of investing, waiting five minutes to drink milk after eating spicy ramen is riskier than if Kate and Justin would have had the milk right away. That time element with investing is called the maturity date. It’s a lot riskier to invest if you’re needing that money right away, versus keeping it in the market for a while.

20:33 – Higher risk investment options include crypto assets, real estate, and IPOs. You can’t make a good meal with just one ingredient, you need to diversify to make a better meal, and a better investing portfolio.

21:49 – Studies show that diversifying your portfolio across 20 to 30 different stocks is more cost effective. Spice lovers who like a little more risk should start investing in stocks, while those who are more risk-averse may want to consider US Treasury bonds that have more security.

22:32 – A mutual fund is a portfolio of a bunch of different stocks. It’s kind of like ramen in that it’s a pretty inexpensive way to invest, but it does take more time to manage a mutual fund.

23:58 – Kate finishes up the episode by sharing an example where you have $100,000 to invest in five stocks. Would you choose to distribute that money equally, or put it all into one and risk the loss, but also the potential gain? Diversification lowers your risk over the long term, and that’s how you bring home the bacon.

ABOUT KATE:

Kate is passionate about all things personal finance and the many ways in which money intersects with quality of life. She’s also a pet-lover and travel writer who reveres the written word. She believes that each brand has a unique message and ability to impact lives. With a primary focus on web content, particularly blog posts and articles, Kate is dedicated to helping businesses share their stories. She also assists small businesses and non-profits with proofreading and editing existing content.

CONTACTS FOR KATE:

• (Website): https://www.budgetingforbacon.com
• (Facebook): https://www.facebook.com/TheKateDelamare/
• (Twitter): https://twitter.com/KateDelamare
• (Email): [e-mail]

FURTHER RESOURCES:

• Investopedia Stock Simulator:
• https://www.investopedia.com/simulator/
• Samyang Spicy Ramen:
• https://amzn.to/3jkLF19
• University of Missouri Risk Tolerance Test:
• https://pfp.missouri.edu/research/investment-risk-tolerance-assessment/
• This test takes about 15-20 minutes to complete at no cost to you and will not ask you for your name, address, or phone number. It was created for research and educational purposes only by the University of Missouri and will provide you with an understanding of your risk tolerance compared with other people.
• Morningstar:

https://www.morningstar.com/

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