As an investor, you need to have a base. I know, sounds boring and not fun. Kind of like watching paint dry or watching grass grow. But it’s a necessary part of every investors portfolio.
Now let’s acknowledge some extraordinary returns of a few unicorn investments.
At the time of this writing, Bitcoin is up 109.3 thousand percent all time. And Ethereum is up 101.4 thousand percent all time. Nvidia has provided insanely high returns in multiple years.
Exceptions
These three investments (and other investments with out of this world returns) are the exception, not the rule. It’s not normal to be able to pick an investment that performs this well. It’s also not normal to continue to hold it while it soars to the moon.
Furthermore, not only is picking winners like this rare, but for every unicorn success, there are probably dozens more investments that tanked. It would be very easy for someone investing $50,000 in higher risk investments to see their portfolio go to zero, or close to it.
The Solution: Have a Base and Invest Regularly
There’s room in a portfolio for higher risk investments. I have a few high risk investments myself (small percentage). But for the average investor with a job, family, and little time to research individual investments, the risky stuff should make up a small percentage of the portfolio.
The solution is to have a base of tried and true investments. And then invest consistently and allow time to compound your returns. An eight to ten percent return over decades can make anyone very wealthy.
For example, index funds and real estate have historically provided fantastic returns when held for a long period of time.
I know, boring and steady, but that’s what the base is supposed to be. The base isn’t supposed to be filled with volatility and outsized yearly returns and losses. Predictable and a foundational piece of your portfolio.
Related: Dollar-Cost Averaging: Why I Do It and 7 Reasons You Should Too
Before Risky and Volatile Investments
Before getting into risky and volatile investments, get a base of the boring and steady. Start the compounding as early as possible and keep contributing.
Build up a nice nest egg and let time work its magic so that you have a solid future.
If you then decide to get into the riskier investments, or even speculation, then you’ve got your base already set. If the high risk/high reward investment or speculation soars to unimaginable heights, great. And if they go to zero, then you’ve still got your base and will be fine long term.
