Learning the wrong lesson

Last week my two-year-old daughter Greta discovered how fun it is to jump from the couch onto the floor. I reminded her of the dangers of jumping around, but of course this only made her more excited and she continued to launch herself from the couch. She couldn’t understand the danger in her actions; the only thing she knew was the thrill of flying through the air.

Before long she was on the ground crying, holding her face as blood trickled through her fingers. She learned the hard way that the consequences of bad decisions don’t always appear immediately.

Maybe you've experienced the same thing while investing. I know I have!

When you invest in something that gives you a huge return, it's easy to convince yourself you are a skilled investor – in reality, you just got lucky. If you continue acting foolishly, eventually you will get hurt, and losing hundreds of dollars on a speculative investment hurts a lot more than a bloody nose!

Don’t put all your eggs in one basket

Making a large bet on a single investment is a great way to get rich quick, but it’s also a great way to lose everything. Most people should try to make small investments in a wide variety of investments – this is the concept of diversification.

Avoid speculative investments

I like to invest in real businesses that sell real products and services to real people. To date, I’ve never invested in cryptocurrency, nor have I recommended these investments to any of my clients. For every person who has made money in these investments, there are a dozen who have lost it.

Investing should not be exciting

A good investment portfolio is one that provides return slowly, over many years. If you want a thrill, go jump off a couch.

About the Author

Joseph Fowler, CFP® is a financial planner and co-owner of 402 Financial in Lincoln, NE.

402 Financial helps people who are in or nearing retirement spend their money. Joe always acts as a fiduciary and never takes commissions on product sales.

If you are considering retirement, click this link to see if you have enough.