What Elon Musk Gets Right About Risk — and the 4 Investing Moves People Over 50 Should Avoid

What Elon Musk gets right about risk

Musk and other visionary entrepreneurs have highly ambitious goals, such as flying to space. As a result, it’s important that they acknowledge uncertainty and plan around it. They create timelines, test out small projects and ensure they have the proper resources to move forward until their visions become realities.

Entrepreneurs and investors can go broke by putting their time and money into the wrong ventures, or without proper planning. While you hear about Tesla and Musk’s other ventures — such as SpaceX and xAI — being successful, there are many other speculative businesses and assets that collapse within a few years. It’s important to keep that risk in mind when pursuing new investment opportunities.

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Risky mistakes investors should avoid

Investors looking to save up for a down payment, send their children to college or retire are operating with much different finances and risk tolerances than entrepreneurs like Musk. Here are four moves they should avoid, especially as they near retirement.

1. Putting too much risk in one investment

There’s a reason financial experts say not to put all your eggs in one basket. Going all-in on a single publicly-traded company, for instance, can lead to a disaster for your finances if that stock tanks. Instead, investors should diversify their portfolio across many different types of assets, such as stocks (including those from various sectors, and of large and small and domestic and international companies) bonds and cash.

Buying index funds is a low-cost way to get diversification and competitive returns. Younger investors may be able to take on more risk than their older counterparts who are nearer to retirement and have shorter time horizons.

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2. Using options and leverage

Options and leverage amplify your portfolio’s movements. While you can generate supercharged returns, you also risk increasing your losses.

For most investors, it makes sense to avoid these risky assets. However, if you have done your research and want to invest with options and leverage, limit your exposure. For example, you may cap your exposure to 2-5% of your overall portfolio.

3. Letting headlines dictate your portfolio

Musk uses social media to bring more attention to his businesses, but it’s not good for long-term investors to stay up to date with all of the noise. Financial advisors often say investors should only buy stocks they feel comfortable holding for at least a few years. That way, it’s easier to stick with scheduled portfolio check-ins than reacting to every media headline.

You can also write rules that constitute when you will buy and sell holdings. For instance, a 10% rally for the S&P 500 may warrant trimming and reallocating some of your assets. Other investors may feel the need to buy more stocks when the broader market is in a correction.

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4. Ignoring potential costs

Big risks like options and margin can sting right away, but there are also subtle risks like inflation and long-term care that cause some people to outlive their savings.

Being too focused on growth opportunities can cause investors to skip on the essentials, such as setting up an emergency savings account, having strong insurance policies and creating an effective withdrawal plan to minimize their taxes and preserve their nest egg.