Welcome Finance is a blog series that explores the complexities of financial topics and how to best use them to build wealth.
Welcome Finance has been around since September of last year, and they’re definitely not newcomers to the financial blogosphere. I first met them on a recent episode of the Financial Diet podcast, where they explained the concept of a “cashflow model.” In essence, a cashflow model is a model of net present value that takes into account the amount of cash you have in your bank account.
So theres a problem with the cashflow model. It assumes your money is invested. This assumption is wrong. You can’t invest your money. There are only a few places you can put your money that you don’t have a credit line, and theres a finite number of years in which you have the ability to get your money back.
If your money is invested, then your net profit is not necessarily the amount you spend on the things you want to buy. In other words, your net profit is not necessarily the amount you make. For example, if you live in a city with a high crime rate, then you might be able to spend more on things you desire, but you could also sell your car and use the money to fund whatever you want to buy.
So what happens to the net profit of a business? When you invest in a business, you are actually taking a gamble. If the market is doing well, then you win. If the market is doing poorly, you lose.
When you get into the financial world, you have to make a decision. Are you going to take a high risk if you believe the markets are going to do well? Or, are you going to take a low risk if you believe the markets will do poorly? It’s a tough call.
When people get into the financial world, they are faced with a choice: Take a high risk or take a low risk. And depending on the market, that choice can be an easy one and one that is well-known. That risk is usually low because the market is doing well. But when a market is doing poorly, you are taking on a much higher risk and betting that the odds are much worse than they really are.
In the past I’ve heard people say, “Bonds are a little riskier than stocks,” and it’s true. As long as the market is going up, bonds are a lot riskier than stocks. However, if you are taking on too much risk, it can make the market unstable and cause it to crash. When that happens, you are in trouble.
While bonds are often thought of as riskier than stocks, it is important to remember that if you buy a bond when the market is going up, you are taking on a lot of risk.
Like with stocks and bonds, bonds come with a set price. But unlike stocks and bonds, the price of a bond fluctuates with the market. If the market is rising, the price is going up. If the market is going down, the price is going down. The more the market is going up, the more bonds you are buying. However, if the market is going down, the price of the bond is going down.