Someone asked me yesterday if they could take 1 million dollars and turn it into 3 million over the course of 5 years if they invested it wisely. I immediately thought of a backcountry ski guide I hired when first learning the ropes of mountaineering. No matter what question I asked him about skiing, keeping myself safe, or handling an avalanche he came back with the same answer,

“Well, it depends.”

I think he wanted to make sure I thought things out and realized that no two situations are ever the same. You must think about both the good and bad consequences of your decisions and realize that every situation is unique. He taught me toTHINK things through, to do your homework, and to research so you have the knowledge base to make informed decisions.

So when asked this investment question, I followed my guide’s example and told her, “Well, it depends.” I also told her this question made me think of Warren Buffet and his #1 rule: protect your principal. The first thing you must ask yourself is, “Are you willing to risk your original 1 million to gain the extra 2 million over the next 5 years?”

Every person has their own “investment risk tolerance profile.” You need to weigh your desired return against how well you want to sleep at night. Do you catch my drift? Typically the higher the return on investment you seek, the more risk, and consequently the less you sleep you’ll get.

We went over her situation and estimated what kind of an annual return she would need to get as well as the options I thought she had for attaining this return. When we finished the exercise we came to the conclusion that it would be more realistic for her to expect doubling her money (or more) within the 5 year time frame while protecting her (precious) principal. It was a conclusion that could help her both grow in the direction of her financial goals, while avoiding the risk of sliding backwards in the progress of her pursuits.

So the moral of the story is:

1. Learn to THINK about all of the pros and cons of your decisions.

2. Learn your own risk tolerance level for investing.

3. Remember rule #1 in investing “protect your principal.”

4. Train yourself to think “Well, it depends...” when making choices about life, backcountry skiing and especially investing.

5. Learn all you can about investing wisely and what OPTIONS are available to you.

6. Hire Peter Leh as your guide when learning the backcountry!

~ Tim Rhode

Author's Bio: 

Tim would tell you that he got off to a slow start. After growing up in the rural town of Portola in Northern California and barely graduating high school, Tim Rhode found himself at the age of 25 working as a grocery clerk with two young children to provide for.

He eventually found his “niche” selling real estate; and from 1986 to 2000, he sold over 2,500 homes and from 1997 to 2006 he invested in over 100 properties. Tim focused on saving money, keeping his expenses low, and playing solid “financial defense” which allowed him to basically retire, and he was financially free at the age of 40.

Not wanting to play hike, bike or ski all day, Tim threw his energy into his true passion: helping people thrive and live their most fulfilling life. He founded the nonprofit 1Life Fully Lived to help people of all ages gain the tools and skills they need to thrive and also co-founded GoBundance, a high-level mastermind, with David Osborn, Pat Hiban and Mike McCarthy to help healthy, wealthy, generous people lead epic lives. We have a women’s tribe now!

Tim has also authored numerous books and has been featured on a variety of podcasts and media outlets. He now lives near his children in the High Sierras with his wife and dog.

You can connect with Tim at www.TimRhode.com.