Why You Should Make That Risky Investment In This Crazy Market
This market is crazy.
The S&P 500 is at an all-time high, we’re still printing money in excess, we haven’t returned to a normal unemployment percentage, and we have stocks and altcoins skyrocketing. All that chaos begs the question: What should you be investing in?
Now, some of you reading this know that I bought 142,000 Dogecoins back in January for right around $1,500. It was an investment that was a mixture of just for fun, an experiment, and video content for my YouTube channel. At that time I had no idea Dogecoin would end up boarding a rocket and taking off.
I wish I could end that story by telling you that I’m now a millionaire but like the paper-handed sissy I am, I ended up selling those coins and making a profit of just over $7,000. Disclaimer: If I would have held onto those coins, they would now be worth $54,850.
Yes, you read that right. Yikes.
The point of this article isn’t to sell you on Dogecoin or evoke any pity about me missing out on the opportunity to net an extra $50,000. What I want you to know is that I think no matter your age, investing background, or anything else you can use as an excuse, you should be taking some calculated risks.
The keyword there is calculated. I have read horror stories of people chasing the hot stock of the day, buying risky call options or worse, using leverage, to make an uncalculated risk that basically never pays off. Most of the time it ends in ruin. Then that guy goes on to discourage anyone who has ever thought of investing their money any place besides under their mattress.
It’s a story I’ve seen play out over and over again and it all goes back to managing your risk. So how do you do this?
I have a rule that I started following when I first got into investing almost 10 years ago. It’s not rocket science but following it can sometimes be difficult. Here it is:
As long as I’m doing whatever I need to get a company match on a 401(k) and maxing out a Roth IRA each year, then the remainder of my money invested shall be allocated however I want. As long as no position shall be larger than 10% of my whole portfolio unless it’s a low-cost index fund.
I’ll be honest, there have been times I haven’t followed this rule, and each time I get burned. Twitter stock is a great example of this. I know it’s bad for me and the returns haven’t been there until recently. Alas, it’s a platform that I have so much love and conviction for that I can’t help but continue buying their stock.
That being said, Twitter stock only makes up roughly 5% of my total dollars invested so I’m still following the rule.
Dogecoin, Twitter, index funds… How does this all tie together?
Personally, I’m someone who enjoys risk. Risk is fun for me and it scratches that gambling itch I always seem to have. Let’s be honest here, investing is gambling no matter which way you spin the roulette wheel BUT you can control the level of risk that you take to an extent.
Investing in things like alt-coins, SPACs, or fresh IPOs is like walking into the high limits slot room at a casino with a single $100 bill. Chances are high you are going to walk out with nothing. Alternatively, you can always invest in low-cost index funds. These are extremely boring but when it comes to letting your money grow, boring is usually what you want to look for (also low fees because no one has time for high-cost funds that don’t perform any better).
Whenever I do coaching calls with someone who is new to investing, I make it a point to focus on index funds and their benefits. There is no point introducing the hot stock of the week because they already know what it is and they are asking how much they should buy and when they should sell. I don’t know and will never know. Nobody does.
Now once I’ve worked with a client for a while, we can get a better idea of their risk profile and comfort with investing. It’s the person that has done the work to set up a great foundation that graduates into making some riskier investments. The question I usually lead this conversation off with is; Are there any companies that you really like?
The standard answer here is usually Apple, which never really surprises me. But I’ve also heard Spotify, Etsy, Pinterest, and many others. I then encourage them to buy some shares in that company. It could be a single share or multiple, it doesn’t matter. They just have to get started.
This leads to a confusing look and them reminding me about all that time I spent stressing the importance of index funds. Index funds are great and a majority of my portfolio is made up of them. But we can’t be wildly responsible all the time. Let’s shoot a few shots. Yes, I missed out on a $50,000 profit on Dogecoin but I still made over $7,000. Higher risk always has the potential for higher reward.
On the flip side of things, I tried to chase marijuana stocks in 2017 and got burned. Thankfully, I followed my rule and the position sizes were relatively small. And that my friends is why we have discipline and only take calculated risks after the other, more important areas of finance are well taken care of.
Some people have no interest and that’s okay. They understand the purpose of the exercise but they feel that owning an individual stock will just cause them unnecessary stress and I totally get it. If that’s you then I’m thankful you read this article, but stick to what works for you. As always, the topic of personal finance should be PERSONAL. You and only you can make the decisions.
The Bottom Line
The best thing I have seen come out of this chaotic market is that there are a lot of people investing for the first time. Sure, they started out by buying some extremely speculative EV stock that doesn’t even have a real product. But that experimentation leads them to buy other companies’ stocks and the process snowballs from there. We now have a new investor which I think is fantastic.
There is a flip side to that though and some people may make their first investment in something that tanks. A big loss can turn someone off from investing pretty quick. They assume the game is rigged only for the rich (which it is in some ways, don’t get it twisted) and they tell their friends, family, and anyone who will listen to never invest. A real tragedy.
There’s no doubt that investing and allowing compounding do its thing is a powerful tool. Yes, I will always believe that the majority of an individual’s portfolio should be made up of index funds but consider what could happen if you try something different. It just might work out.
If your risk tolerance will allow it then maybe look into buying some shares in your favorite companies. Sprinkle in some bitcoin or chase one of the hot stocks. But just remember to make sure the risk is calculated because this is a long-term game, not a get-rich-quick scheme.
Thanks for reading. Happy investing.