Simplifying Hive Bookkeeping
I have a friend who has started learning about buying stocks and crypto. He gets excited when one of his stocks goes up and he sees his portfolio rise by a $10-20. Then he sells to lock in his profits. It's the same way with crypto. He bought into Dogecoin because it was so cheap and he could buy so much of it. He figured $10 in Doge would do the trick, which he could then sell if it ever gets up to $15 in value.
My friend is learning. It is a good thing that he is not betting the farm on his education. However, after watching him for some months, he has two problems. The first problem is that his positions are still too small. If you get a 20% return on $10, that's $2. Technically, it's a good return. However, it's not life-changing. If he had put in $100 and got back $20, that's at least some beers after work. If he put in $1000 and got back $200, that would cover a night out with his family. $10,000 yielding $2,000 starts to make a difference in your life.
In the long-run, he needs to work on saving up larger amounts of money to invest. With large amounts of money, even small gains add up to significant money. On the flip side, losses are harder to swallow for the same reason. Losing 5% of $10,000 is a bit more breathtaking than 5% of $10.
That brings me to the other point. My friend has been investing with a trading mindset, which essentially is a gambling mindset. Trading is a ladder of ifs. Yes, you can make money. However, experienced and successful traders also suffer many losses. The gains don't come for free. I have introduced him to income investing. There are stocks that pay dividends consistently. There are REITs. There are places where you can park your crypto and earn interest. The advantage of these is that you spend less time managing the accounts. Once every paycheck, you go in and buy. Then walk away until next paycheck. In the long-term, income investments outpace those that rely solely on capital gains. Again, this is especially true when you are talking about large positions. Earning 6% interest on $10K is $600. Add a zero and that becomes $6000.
If you are patient and build up a large enough pile of money in stocks or crypto, you can get some respectable income without having to spend hours and hours watching charts and playing the calculator game. Sadly, this isn't going to happen with a few hundred here or a couple thousand there. You need to be serious about adding zeros to your savings so that small returns can be worthwhile.
Try to put away $10,000 into an investment that yields 6-8% annually. For most people $600-800 per year is significant. It's at least week of wages. Imagine having two weeks, five weeks, or ten weeks of wages paid out to you every year. That becomes life-changing.
If you're going to invest, you have to really invest so that reasonable returns aren't just a mental exercise. You have to make your investment large so that it is worthwhile when you get reasonable returns.
Of course, there are precautions. Only use money that you have in excess. There is also validity that you should only invest money that you can afford to lose. This especially applies to speculative investments. However, it can also apply to income-producing investments. You can mitigate some of this by avoiding investments that promise unreasonable returns. In other words, making investing worthwhile requires a lot of money, which also demands a lot of caution.
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