Risk Every Spare Dollar (Wisely)

Conventional wisdom tells us to not to risk money. Conventional wisdom is wrong sometimes.

Note: This post is about SPARE money. This is money that you might have otherwise spent on a TV or new clothes. This is NOT your rent money or food money. If you risk money you need to live off of, you’re an idiot. ūüôā

It isn’t always a terrible idea to be conservative with money, like when you’re three years away from retirement and will have enough to sustain you. ¬†But I see the “responsible” twenty-somethings putting all of their money in a savings account. ¬†This is stupid. ¬†The time to take risks is when you’re young and you can scale back on risk as you near retirement.

I plan to get some work soon – maybe on a per-contract basis. ¬†As I earn money, I’m going to invest it aggressively in the stock market and in myself.

Risking Money With LEAP Options

I love the LEAP option. ¬†It allows you to claim a stake in a company for much less money than the underlying stock price for up to two years. ¬†The downside to options is that they expire eventually and you could¬†lose all of your invested money. I won’t get into the details of option investing (that would be several long posts), but the LEAP option is a great way to take smart risks.

In 2009, I purchased an Apple LEAP call option when the stock was at $120.  The cost was $2,000 and I sold it a couple months later for $4,000, doubling my investment. But if I had held on for another year, I would have been able to sell it for $20,000 (a mistake I have learned from).

If I had held on to that investment and made NINE other investments of the same amount that became worthless РI would still break even.  It is highly unlikely that all of the other nine would fail.  The reason this strategy works is the same reason that being willing to fail is the key to success.  I may lose on 80% of these investments, but the successful ones like the Apple LEAP option are going to more than make up for the losers.

Bet On Yourself Too!

It is smart to diversify a high risk/high reward plan like this. ¬†I recommend investing in¬†yourself. ¬†I’m investing in this blog (i.e. myself) because I believe in what I’m doing here. ¬†I also may start other websites/online businesses that have potential to support me financially.

Given how passionate I am for what I’m doing, failure in most of these ventures is unlikely, but I can still afford that if some of them succeed. ¬†Investing in your own abilities has much greater payoff and satisfaction potential than any stock option investment. ¬†Some people have started blogs and websites as a hobby and now live off of them. ¬†All they did was enter the game and it paid off.

WARNING: This Is Not For Everyone

When you work for a company, you agree to turn over any value you create to that company. ¬†The only thing you retain when you leave is the money you’ve earned (pensions are rare these days) and the experience to put on your resume. ¬†So when you’re 60 years old, you had better have some money because you haven’t created value for yourself, but for someone else. ¬†This route in life is perfectly acceptable, but it plays by different rules.

You can’t be very risky in this case because you have no value to fall back on. ¬†Your value is tied up in the job. ¬†Imagine value as being clothing – once the job is removed, you’re naked with a nice resume. ¬†On the other hand, if you have your own business, you can sell it or let others manage it as you continue to profit. ¬†If you have a blog, you can sell it or continue to generate passive income from it.

But This Could Be For You…

The reason that this is viable for me is because I’m working on building things (such as this blog) that have permanent value. ¬†The content I write is timeless for the most part. ¬†I didn’t write about the royal wedding in late April 2011. ¬†I wrote about why multi-tasking is killing your productivity. ¬†The wedding is old news already and my article can provide value to readers 30 years from now.

I’m just getting started and I know that in twenty years I will have created a good deal of permanent value in my blogs or businesses. ¬†This makes it easy for me to risk spare money that I have now. ¬†If I were just trading my time for money at Corporation X and counting on that to support me in retirement, I’d risk considerably less.

Once you build permanent value by blogging or writing a book, you can earn passive income because your content can provide value long after it is created.  This is what makes video games and movies work Рthey take a lot of work, effort, and investment to make initially Рand here we are still watching Gone With The Wind 70 years later.

Srini over at The Skool Of Life wrote about the importance of persevering despite not always seeing visible progress and immediate results.  This is exactly what you need in the value-creating business. The flashiest objects will be noticed first, but the real valuable objects are the ones that people will be attracted to in the long run (e.g. the internet bubble of 2000).

Ok, But WHY Risk Every Spare Dollar?

The rich get richer.

Kid With Cash

This kid gets it.

The reason that statement is true is that money represents freedom and options. ¬†If you have a million dollars, you’re able to do a LOT of things to grow your wealth that you can’t do broke. ¬†The only ways to gain a significant amount of money to work with are to take smart risks that pay off or to slowly build up wealth. I recommend the former for people like me and the latter for people working the 9-5 to provide for them.

As in the Apple example, it is easy to see that smart risks can pay off handsomely. ¬†In a paper trading (fake) account I took a risk on a Google option and made $350,000 from a $25,000 investment in one day – I would never take this risk in real life, but it was interesting! ¬†If one of your risks pays off early, you’ll be in great shape. ¬†If not, then you have the value you’re creating (and will create) to fall back on.

The truth is that there is no safety net in life/career/money. ¬†Those who stuff money under a mattress fall victim to inflation and the devaluation of the dollar. ¬†Those who win are the ones who are active and smart with risk-taking. ¬†Look at any successful person and you’ll see they took some key risks that paid off.

If you’re terrible at picking stocks/options or don’t know what you’re doing, then I’d recommend against risking your money there. Either learn how to invest, let someone else qualified do it, or don’t do it! I also advise against short term speculation because it is impossible to predict. ¬†Longer term LEAP options give us the ability to make longer term strategic selections and offer a nice reward if we’re correct.

Most importantly, I advise everyone to invest in themselves if they can. ¬†If you’re committed to making it on your own with businesses or web properties, each failure will be a learning experience that contributes to the one time that you succeed. ¬†Become an expert in a field you love and start a website for a consulting business. ¬†Start a blog and write about your passions.

You can even do these things on the side as you work your main job.  The possibilities are endless Рyour life is not.  Start a deep thinking session and find a way to create value for yourself.

Tell us in the comments what risks you have taken that have paid off (or not) for you!

About the Author

I'm lazy, but you can call me Stephen. When you're as lazy as I am, you need superior strategies to live well. My strategies are so effective that I'm productive every single day. As the world tries to figure out how to always stay motivated, I create strategies that don't require it.

Armand Polanski

Stephen,

Nice Post, even Donald Trump said in one of his books “The Best Investments are investment to yourself”. At the end of the day, the results we achieve in any investment or business deal we take part of, is reflected on the actions we took before.

sguise

Thanks Armand,

Good stuff. I’d have to agree with Mr. Trump on that one!

Hugo Martins

I like to invest in myself reading your blog posts. Best of all – it’s free!

sguise

Thanks Hugo! That means a lot to me.

Brad

Interesting stuff here. I have a Simple IRA that I’m learning to invest with. I wonder if it’s possible to allocate some of those funds for the LEAP options you talk about. I better read more on them before making any moves though.

I need to quit the 9-5 and get my businesses off the ground. It will happen.

Keep writing the good stuff Stephen…

sguise

It likely depends on what account settings you have in place, but I invest in LEAP options through my Roth IRA (it can be done). More research is never a bad idea.

I will keep writing the best stuff I can write. I hope you are able to do that, Brad. Belief that you can will go a long way in helping you accomplish it.

Ashvini

Hi Stephan,
I am very much a stock market enthusiast. Many time I have lost money but I learned and moved on . If someone cannot take the risk of losing money, they should invest in Fixed Deposits with bank. ( with high inflation that would be a bad choice).

sguise

Ashvini,

There are a lot of options for those who are risk-averse. A popular one is TIPS (Treasury Inflation Protected Securities), which are protected against inflation. There are also bonds with AAA-rated companies that are pretty safe investments. I agree with losing money in the stock market – it is a valuable learning experience. Have you done any options investing? Thanks for your input!

RILEY HARRISON

Stephen,
“Conventional wisdom tells us to not to risk money” I think the correct paradigm is that EVERYTHING is a risk and life is just a big probabilities and risk management game. As you mature and life beats you up a few times, your risk management skills will improve. On finances – I really believe that if one learns to save (saving should be one of your monthly expenses), understands the power of compound interest and takes the time to learn basic investment strategies your net worth will steadily increase until working for a living will become an option.
Riley

sguise

I agree that everything is a risk. I said, “The truth is that there is no safety net in life/career/money.” Saving money isn’t the worst thing you can do, but I’m suggesting that aggressive investing in things (yourself especially) is a better option. Of course you can and maybe should do both, but that depends on how much you’re willing to risk on yourself. Your thoughts are wise and I don’t disagree. But I am suggesting a different way in this article that makes sense mathematically.

I believe that if you continue to invest in smart and well-proportioned risk-reward investments, that your winners will make up for the losers. My thoughts could certainly change on this “as life beats me up.” ūüôā I look forward to revisiting this post in a few years and seeing how things turn out. Thanks for your thoughts, Riley.

RILEY HARRISON

Ok I made a note on my google calendar, check in with Stephen – May 19, 2021

Ashvini

Hi Stephan,
We dont have TIPS here in India. So we have only poor fix deposits to invest in. They are my mom and pop choice kind of instruments.
I have not done options only invested in secondary market( shares purchase for long term). I like to be a fundamental analyst of shares ūüôā
How much do you invest and how do you find good companies?
Best regards,
Ashvini

sguise

Of course. Pardon my lack of awareness! I don’t have much to invest right now ($2000 dollars), but I will be investing as much as I can. I like to look at the where the world is headed (digital distribution, 3D printing, social media, etc.) and look at leading companies in those areas with solid financial status and attractive valuation. Right now I’m investing in Apple because their valuation is ridiculously low and they are still growing at a significant pace.

sguise

haha, so I have a decade to get rich to prove my point? Ok, I’m working on it right now. Please do check in…that would be really funny!

Archan Mehta

What money? I have none, Stephen. In my imagination, however, yours truly is a billionaire.
I am so wealthy that I make people like Bill Gates cut my lawn and Warren Buffet tends to my kitchen. Demi Moore married me for money, but later decided to join the mob (movie industry).
After a while, I got bored with all the cold, hard cash and decided to donate it to charity. So here I am, a homeless street urchin, but I enjoy reading your blog. More power to you, my friend. Cheers.

sguise

You dropped more names in that post than I’ve ever dropped in my life! Not really, but that was quite the list. You’re a good man to give all of your billions to charity. Why not leave some to buy milk though? ūüôā

Scrollwork: Quirkyisms from a Tropical Transplant

The risks I’ve taken:
1) I left everything (including a job) behind, flew 8,000 miles across the Pacific Ocean and crashed with an aunt and uncle I’d only met once in my life. I had a visitor’s visa at the time and $5 from my sister.
2) Within a year, I married a man from a different faith and cultural background, who was older and was a single dad to two toddlers. I gave up my job to raise them full-time for four years. We had no savings, and no health or car insurance (until the latter became mandatory).
3) After 14 years, I left our home and rented an apartment. I went into debt ($12,000) rather than ask for support. I got counseling for several years. We spent five years apart. I consider the time and money an investment in fixing a very wonky marriage and self-image.

The risks paid off big-time. We celebrate our 25th anniversary this fall. I paid off my debt two years ago.

4) After 19 years of being a paid corporate writer/speechwriter, I refused to kowtow to a dictator, knowing I was risking my job. I was terminated. Like you, I went through a non-productive phase. Like you, I decided to start a blog. Reframing my mindset from “loser” to “seeker,” I discovered passions for macro photography and costume design, and have opened an online business.

I didn’t risk “spare” resources. I gambled like there was no tomorrow. For me, it was worth it.

sguise

You have taken some serious risks! To an outsider those all look like massive gambles. To me I see a common factor in all of them – you’re pursuing your passions and dreams without restriction. You’re not afraid to take risks that bring you closer to where you want to be, and I admire that very much.

I’m at a major crossroads right now – and I will keep your story in mind as I make the next decisions that could have a lasting impact on my direction. Thank you.

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