Things To Do Before Making Any Investment If You Don't Want To Lose Everything Financial Advisory Journal Made for prospects trying to find personal finance pointers. You can find many qualified high-level business experts. Please reach out to us for more info... Nick Banks Ameriprise Financial Services, Inc. 825 Juniper St Atlanta, GA 30308 (706) 645-7890 ============================================================
This post is a reminder to myself and to all of you that we can and will lose money if we invest in risk assets for a long enough period of time. The only way to never lose money again is if we never make any investments. Ive personally reached a level of investing discomfort that feels a little bit scary. After deploying a couple bucks in 2017, I invested a large chunk of change in the stock market during the first week of 2018. After all, I wrote in my 2018 outlook that 2018 would be the last year of good times. Not following through with my beliefs would be a waste of time. The problem right now is that it feels like Im suffering from investing FOMO and so are many of you. When you experience FOMO, you tend to do some incredibly irrational things. I hate the way money can make us greedy. Hopefully, this post will help those of you who feel the same take a pause and think about risk more. How To Lose All Your Money Easily Now that Im back in retirement mode, Ive done more consuming and less producing. And one of the things Ive been observing with great fascination is all the get rich quick schemes that have popped up thanks to the rise of cryptocurrencies. There is this one guy who boasted making minimum wage a year ago and is now a cryptocurrency millionaire. He shows his electronic wallet on social media for all to see in order to create FOMO in his followers. He succeeds. He began aggressively promoting Bitconnect in 2H2017, a bitcoin based lending platform where they take your cash or Bitcoin and give you a GUARANTEED interest of between 0.25% 1% a DAY with Bitconnect currency. They said they have a proprietary bitcoin trading bot that produces such
returns. In other words, if youinvested$1,000, after 3 yearsof1% daily compounding interest, youwouldhave something like $53,000,000! Come on! Check out this chart from Bitconnect highlighting their promised returns and capital back time table.
Bitconnects false promises When the Bitconnect platform realized they were running out of money to pay their new users, they decided to shut down their exchange, leaving all those who gave them cash or Bitcoin stranded. Their Bitconnect currency proceeded to plummet 90% overnight and its fate remains to be seen. Where did all the cash and Bitcoin they collected go? Who knows!
Bitconnect investors lost 90% of their money in one day Once I saw the price plunge and learned about the promoters and how Bitconnect worked, I thought to myselftheresno way anybody could have beensogullibleandfall for this scam. Heres a comment after the plunge that parodies an Eminem song.
OK, people must be joking. Nobody could have given Bitconnect money right? Then I saw more serious comments from people who claim to have lost a lot of money in Bitconnect. Heres one from a guy who supposedly invested $500,000 in Bitconnect and wants to take out a $5,000,000 loan to invest more in cryptocurrency!
Still unconvinced about the seriousness of these comments, I kept on reading the feedback and stumbled across this Youtube video of a guy who lost $30,000 in loans in Bitconnect. After watching this video, Im now convinced there were actually people who did fall for Bitconnects wild promises. It does not look like hes acting. [embedded content]Seeing all the carnage, I couldnt help but feel its my duty as a personal finance blogger to make sure more people dont lose a ton of money investinginscams. Ive gotten scammed before and so have some of my loved ones and I hate it! Heres a list of potential crypto ponzi schemes to watch out for created on Reddit. Let me share some exercises I go through before making ANY investment. Hopefully these exercises will helpkeepyougrounded as you seekto buildyourfortune. Steps To Take Before Making Any Investment Decision 1) Calculate how many hours, days, weeks, or months you need to work to make up for a loss. Lets
say you make a $10,000 investment in anything that has risk. You earn $20/hour. If you lose all your money, you will have to work at least 500 hours to get all your money back. Since you have to pay taxes, you have to work more like 650 hours. Given youre only making $20/hour, the job probably isnt something you love to do. Knowing the pain of recovery period will helpkeep your FOMO in check andhelp youmake more risk appropriate investment decisions.
2) Look for keywords such as cant lose, guarantee, and get rich quick in the marketing material. If you find any of these keywords, run the other way. There is NO GUARANTEE to any investment except for an FDIC insured savings account up to $250,000 per person or holding a US Treasury bond until maturity. Even then, the US economy could blow up. 3) Ask yourself whether you truly understand the business model. If you cannot easily explain the business model with a straight face to a loved one, you do not understand what you are investing in. If you dont understand what you are investing in, you should not invest in the product. For example, I had one guy ask me why hehadntreceived any returnsthree months after making a $25,000equityinvestment in a three year real estate crowdfunding deal.Hedconfused an equity investmentwitha debt investment and obviouslyhadnt understoodthe literature about the deal discussing their strategy of selling the propertyin three yearsfor a target profit. 4) Calculate your net worth composition to understand risk. You must understand your net worth composition in order to understand how much risk exposure you have or are comfortably able to take. Losing $30,000 in Bitconnect is survivable if youre worth at least $300,000 and have a steady job making at least $60,000. But it doesnt sound like the guy in the video has much more than $30,000 to his name since he said he lost his lifes savings. Theres a reason why professional money managers diversify client holdings. Related: Recommended Net Worth Allocation By Age 5) Limit all alternative investments to no more than 10% of your net worth. I define alternative investments as any investment other than publicly traded stocks, bonds, CDs, and physical real estate. Investing in stocks, bonds, and physical real estate is good enough to build enough wealth for financial independence. There is NO NEED to invest in anything else.Alternative investments do have the ability to generate higher returns or diversified returns than non-alternative investments,
but they are often illiquid, more difficult to understand, carry higher fees, and may carry much higher risk. You are not the ~$27B Yale endowment with ~55% of their fund in alternative investments because you dont have the same amount of access, power, and team of investment professionals tracking the fund full-time. BTW, they returned 11.3% between June 2016 June 2017 with venture capital (17% allocation) leading the way +106%. 6) For goodness sake, please dont take out a loan to invest in alternative investments.The people whogetinto real trouble during a correction are those who not onlyinvesttoo much of their net worth in the investment, but alsotakeout a loan. Yes, margin investing in the stock market is at all-time highs, which is scary because the stock market isalsoat all time highs. Yes, taking out a mortgage you cant afford when real estate prices are at all-time highs is also a terrible idea as we saw in the 2008-2010 financial crisis. If you lose 100% of 10% of your net worth, you will be pissed off, but survive. If you lose 100% of 100% of your net worth, you will be devastated and perpetually depressed, but will likely survive if you have a job. But if you lose 100% of 200% of your net worth due to debt, you will be ruined and likely stay poor forever. Related: Only A Petulant Fool Borrows From Their 401k
7) Please understand the background and history ofthe persontrying to sell you something.If the personisa broke fellawho waspacking boxes for minimum wage a year ago and is now telling you how to get rich,be wary. If the person is a high school student teaching you about the fundamentals of investing, be wary. If the person only highlights his wins and never his losses, be wary. The person should have a multi-year track record before you listen to their advice. And even still, be wary. Theres a reason why institutions wait until a fund has at least a 3-year investment track record before investing any money. Theres a reason why funds that have a 10-year or longer track record tend tohavethe mostassets under management. This promotional video of Bitconnect is too hilarious. If you are spending thousands of dollars to go to an investment conference, the only person guaranteed to get rich is the one running the conference.
[embedded content]8) Get feedback from at least three people before making an investment.It is easy for us to getexcitedabout an investment that could make us rich. We start fantasizing about what wewouldbuy with our profits, where wewouldtravel, or how wewouldquit our jobs. Yes, money makes us go crazy. Therefore, you must share your investment thesis with at least three people: a parent, a sibling or best friend, and the smartest person you know. Listen to all theircriticism. I get someone telling me Im an idiot every week for my investment decisions, and I appreciate it because there is no guarantee! Its when everybody agrees with what Im doing when I start getting worried. If you have truly listened and still believe in your investment thesis, then go ahead and take a risk with no more than 10% of your net worth.Invest Responsibly Please One of the reasons why Im so much happier just being a personal finance blogger than working in investment banking is because Im not calling or e-mailing anybody to buy anything. If people want to read my writing by bookmarking this site, subscribing to my e-mail feed or private newsletter, or listening to my iTunes channel, folks are welcome to do so for free. Youre not going to get your face ripped off by learning about one guys perspective on money. Please invest responsibly folks. Dont ever give your money to someone you dont know or invest in something you dont thoroughly understand. Be wary of folks who are saying you just cant lose. Please try and tame your desire for getting rich quickly. If you can avoid stepping on financial land mines, you will be able to reach financial independence more easily. As for me, Im back to building up a large cash hoard. Ill still invest in risk assets when I see someopportunity. Itsjust that the amount Ill be investing willbe much lower than usual. The Bitconnect implosion has really reminded me about risk. Ivealreadygone beyond my comfort zone and plan to get back to my safe place. If you think about it, every investment except for hard assets like real estate or your 1952 Mickey Mantle rookie card are just digital numbers on the screen. Your screen might show a fortune one day and a big fat ZERO the next. Its the reason why Im so much more comfortable investing in physical real estate than any other investment. Finally, I leave you with this final investing thought. You can never lose if you lock in a gain. Yes, you might sell something too soon and kick yourself for not holding on for more gains. But selling early is much better than selling too late. The floor drops out from under you when everybody starts to panic. I experienced this firsthand when I tried to sell my house in 2012. Related Posts: It Feels A Lot Like 2007 Again: Reflecting On The Previous Peak This is a must read for those of you who are going crazy with your investments. If you learn from history, you have a better chance of not repeating the worst times of history. How To Invest In Speculative Investments Without Losing Your Shirt And Underwear If you must speculate, then I suggest starting with the income from your stable investments. If you have no investment income, then dont invest in speculative investments. What A Potential Real Estate Crowdfunding Loss Looks Like Im bullish on investing in non-coastal real estate, but I am by no means delusional into thinking that you cant lose investing in cheaper property with higher rental yields. Theres operator risk, natural disaster risk, economic risk, interest rate risk, etc.
Real Estate Investment Mistakes To Avoid I lost big during the financial crisis because I stupidly bought a $710,000+ vacation property in Lake Tahoe in 2007 because I thought my income would go up forever. Perpetual Failure Is The Reason Why I Continue To Save So Much Saving aggressively is the best coping mechanism Ive found to withstand all the mistakes Ive made in my career, finances, and business decisions. https://www.financialsamurai.com/wp-content/uploads/2018/01/Before-You-Invest-Any-Money-Do-Th e-Following.m4a Shares 150 Could You Benefit From an Advisor? Learn more today... Kleinman Financial Services Inc. 127 Soundview Dr Port Washington, NY 11050 (516) 944-3643