Last night, I got a call from my old friend Matt. Matt had a problem. He had saved some money, but was terrified to invest it.
“What if I lose it?” he asked? So I explained to him the core concept behind all of my investments.
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The Money You Can Afford to Lose
In this great country, many of us are fortunate enough to have money we can afford to lose. We wouldn’t enjoy losing it, but life would go on.
That’s money we can use for riskier investments.
Why do we do this? Because greater risk often comes with greater rewards.
Francis the Speculator
Every day, I make some of the riskiest investments on earth. At night, I sleep like the dead.
A tech startup might be the most speculative investment you can make. At this early stage, a company is just a couple of people on laptops.
Assets? Nothing.
Collateral? Lol.
I expect 70% of my startups to go bust. The failure rate is higher than almost anything, except maybe crypto.
“Is that nerve-wracking?” people often ask.
Not at all. Because I know how much money I can afford to lose.
And I never bet more than that.
Startups are at the extreme end of the risk spectrum. An S&P 500 index fund is closer to the middle, and a better choice for Matt.
Money You Can’t Afford to Lose
We all need something to pay the bills, right?
That’s the money we can’t afford to lose. So we shouldn’t expose it to too much risk.
A good home for that money is a bank account or money market. You can make a little interest without worrying you’ll lose money.
Losses, Guaranteed!
Back to my buddy Matt.
“I’ll remove the mystery. You will absolutely lose money in stocks. I guarantee it,” I told him.
If you invest in any risky category long enough, you’ll take losses.
Thing is though, it tends to come back. And as humans innovate, prices reach ever higher.
Non-Attachment
I had one last thing for Matt.
It’s the concept of “non-attachment.” Called danshari in Japanese, it comes from Buddhism.
I try not to be attached to money.
I have certain assets now. But I might not always.
That money isn’t me. I’m me.
When I was younger, I didn’t have a dime. And I was still me.
So if I increase my assets, that’s great. But if they go away, I’ll still be Francis and I’ll be okay.
If we adopt a healthy attitude toward money, we become better investors.
We take a good bet when it’s available. And we don’t obsess about the potential for loss.
But something more important happens too. We become happier people.
How do you think about money? Leave a comment and let us know!
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