Week 40: Wild Card Topic

What can you do this week?

• If you have that burning desire to “swing for the fences” with your investment dollars, don’t let that bleed into your serious money.

• A separate taxable account designated for aggressive bets instead of using your retirement accounts or emergency savings can serve you well for a variety of reasons below.

• Determine what amount you’re comfortable losing 100% of (definitely no more than 5% of your overall investments), then research how you want to place your bets/where to invest.

Is This Professional Advice? No

• While financial professionals (including myself) will not often advise you to do this for liability reasons, you can absolutely do this on your own.

• This would be outside an advised account relationship.

  Speculating Vs. Investing

• Speculating and Investing can often get confused. Per Investopedia.

• Speculating: means risking money on an event that has an uncertain outcome and heavily involves chance.

• Investing: allocating funds or committing capital to an asset, such as a stock or bond, with the expectation of generating income or a profit.

• Both activities can make you money and sometimes a lot of it.

  

House Money

• When making aggressive investments, even with money you’re comfortable with losing, you can limit the discomfort.

• A rule than can help you feel better about your risk vs. reward tradeoff is to sell off your original investment when you reach a 100% return.

• Those lucky enough to have invested in the big winners in history will look back at this strategy and laugh while the biggest losers will say it’s a wise approach.

• Many investors have many ideas. Some will 10x while others will -100

• This tactic allows for the more conservative of these investors to sleep well knowing what they earned didn’t cost them anything but time. Regrets, that’s a different story.

• In the below example, this investor bought 100 shares/$3,000 The investment doubled to $6,000 when 50 shares were sold. The stock then plummeted in value from $60 a share to $15. The investor sold and was able to realize another $750 in profit.

• Had the investor never sold at that high point, they would instead have a loss of -$2,250.

  

  Learn More (Even If The Hard Way)

• Our own human curiosity is a powerful force. Sometimes for our benefit and sometimes to our detriment.

• A speculation account where you can experiment and try ideas or hypotheses, provides you freedom and learning experience.

• Sometimes you can really do well. This year has been a particularly strong one for the stock market.

• Below is a real client’s portfolio. The “Aggressive Investments” account is not managed and is one where this client has chosen their own 2 investments with a small amount they are comfortable losing.

• We could see an equally negative experience or worse with such aggressive and concentrated bets.

  

To learn more about my services, checkout my website and schedule a call.

May Help You Diversify

• While speculative investments are inherently riskier, they may provide exposure to asset classes or sectors that are less correlated with traditional investments like stocks and bonds.

• For example, frontier markets, cryptocurrency investments, covered call strategies, currency trading, options strategies, etc. may have a lower correlation to your standard investments.

• Whether you’re looking at emerging industries, commodities, or alternative investments, a speculation account can add a layer of diversification that complements your overall portfolio strategy.

Why Do This In A Taxable Account?

• A taxable accounts allows for gains that are tax advantaged if you hold it one year + (Capital Gains)

• It also allows for full losses to be used to help you come tax time.

• $3,000 can be used against ordinary income to reduce what is often your highest taxed income source.

• You also can have unlimited ability to offset realized capital gains as well.

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