There seems to be some debate in personal finance: Should you prioritize security or aim for high returns? I think we all would love to triple or quadruple the size of our investment/trading account, but in my experience, consistent growth coupled with perceived security has led to a stable financial future for me and helped secure a life of freedom. This is how I built my playbook to freedom, is it right for you? That's for you to decide because I do believe personal finance is personal after all! Let me share my experience because I think it can help you on your journey.
Flashback to 2004 - I'm freshly out of college, I don't really know too much about stocks but a 24-year-old me decides to invest a good chunk of my savings in a new company called Google (I still have a hard time calling it Alphabet if I’m honest). My decision was simple: I found their products useful, it was innovative, and I saw potential for growth. Fast forward to the present, and my initial shares in Google, along with some added over the years, form a considerable portion of my wealth. This investment, in part, also provided the security I needed to leave my 9-to-5 grind and chase my dreams. I always thought this was a smart decision. I was/am proud of this investment.
However, not everyone viewed my investment strategy with the same lens. On one sunny day, as we lounged on a private island, a friend argued that I could have done better - by investing in Tesla, which had a jaw-dropping return of 745% in 2020. He was correct, technically. But that misses an important point. To me investing and trading isn't just about hitting home runs. It's about understanding your financial goals and risk tolerance. For some, high volatility stocks like Tesla might be a perfect fit. They come with great risk but also great potential reward.
My portfolio at the time was full of Dividend Aristocrats, I bought them low and they were paying me consistent income each month or quarter. I was selling calls against them generating more income on top of the dividend. In my mind I copied Warren Buffett on a micro level scale (who am I kidding, it really isn't close, but let me have this… LOL.)
In the stock market there is a Greek called 'Beta' - Beta is a measure of a stock's volatility in relation to the market (the S&P 500). Stocks like Tesla, with a high Beta, can indeed balloon your account, but they can also deflate it pretty quickly.
Before making any investment decisions, consider the following: Is your primary focus capital preservation or high returns? Are you diversifying your portfolio enough to withstand market fluctuations? Are you pursuing multiple income streams? Remember, on average, millionaires in the U.S. have seven income streams.
For me, I have part of my stock portfolio in more aggressive growth stocks with a higher beta, I also my largest holding is SPY (the S&P 500) mixed in with dividend companies, blue chips, and even some mutual funds. I truly believe there is value in diversification. I'd rather 'risk' missing out on a 500% return to know I'm generating some income and keeping my losses in check.
This article serves as a reminder that we ALL need to avoid comparison. It truly is the thief of joy. Celebrate your achievements and remember, everyone's financial journey is unique. Small, consistent steps towards your financial goals are more impactful than drastic changes. So, let the naysayers talk, you just keep your focus on the goal. After all, living your best life isn't just about the highs and lows of the stock market; it's about the freedom to chase your dreams, secured by wise and strategic planning.
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