by Damon Carr
For New Pittsburgh Courier
There’s something exciting taking place right before our eyes. People are taking ownership of their income and their life. They’re creating businesses and looking for investment opportunities. Our millennial generation—those born between 1981 and 1996—are different. It seems as if many of them were born with an innate entrepreneurial spirit. It is millennials who are leading the charge in creating new businesses. It is millennials who are leading the charge in creating demand for Bitcoins. It is millennials who led the charge in running up the stock prices of GameStop, Blackberry, AMC Entertainment and Bed, Bath, and Beyond. It is the millennials’ actions and movements that have attracted the attention of Wall Street, big corporate conglomerates, Congress, and the White House. It is us, the non-millennials—alongside the rest of the world, who are watching all of this play out.
Not only were millennials born with an innate entrepreneurial spirit. They appear to have a higher tolerance for risk than generations before them. Generation Xers and Baby Boomers are watching. We see and hear all the fuss surrounding Bitcoins and GameStop. We want some of that action.
What does any of this have to do with a cat being skinned? Risk! Your money can be cut to pieces if you don’t properly consider and adjust for risk.
Let’s start with Bitcoin. I get more solicitation than I get questions about Bitcoins. A couple of friends of mine reached out to me touting big coins in Bitcoin. I gave my usual spiel about Bitcoin only being in existence since 2009. It’s extremely volatile or risky. It moves up or down 900 percent faster than you can blink your eye. There’s no government control. Should you be swindled out of money, there’s zero protection for you. I go on to say, it’s legitimate. I currently don’t own any bitcoin. If you decide to go that route, limit your exposure to no more than 10 percent of your investment dollars.
My response was both diplomatic and professional. I kept it moving and continued to focus on what I do. One of my friends tagged me in his post, stating, “I told you Damon Carr. I tripled my money.” I responded, “good job!” I went on to say, the casino has an excellent word-of-mouth advertising model. Everybody brags and boasts about their wins. They say nothing about their losses. The same thing is true about Bitcoin. Another friend of mine was overly persistent trying to get me into Bitcoin. I told him, I’m not your target market. Save your breath and go talk to someone else.
He responded, “I know what you know. This is the new way.” I said, “Bro, I’ve known you for about six years. Each year you peddle something new. You starting to look like ‘Hustle Man.’ What’s the next thing you’re selling?” We eventually smoothed things out and agreed to talk about things we agree on. I recently saw him posting about how his $500 investment in Bitcoin increased in value. I thought to myself, he’s exerting a lot of energy touting Bitcoin to be out here nickeling and diming on his investment. If he really believed in Bitcoin, put some real money on the line.
Recently, my inbox has been flooded with people asking me what do you know about stocks? I went back and forth with a few of them to get an understanding of what they wanted to know. In each case, they knew nothing about stocks. They were seeking to make a fast buck in the stock market similar to what happened with GameStop. I explained what happened with GameStop is an anomaly. I told them that getting rich quick in the stock market is a task that very few succeed at. But if you’re OK with getting wealthy slowly in the market, it’s extremely realistic. You can certainly make money in the market. The key is not to do anything stupid like having your investments highly concentrated in a few stocks or a few industries.
This back and forth with Bitcoin and stock investments prompted me to create a meme. It read, “Looking for a GUARANTEED 100% return with Absolutely ZERO Risk? Company Matching Retirement Plan!! They match you dollar for dollar up to 6%. That’s FREE Money! If you’re skipping this free money and opting to try your hand at other investments, shame on you!”
An avid follower of my page responded. I always thought this. Over the years, I’ve watched people stop participating and save money themselves and invest in real estate. It looks like it paid off for them. So now, I wonder.
I responded there’s more than one way to skin a cat. The sound money advice that I share assures that the cat doesn’t get nicked, cut, or worse—slaughtered. I think the cat would prefer to take this route first. Then the cat can claw his way to amassing other assets.
The cat being skinned is a matter of risk. When seeking to compare investments, you have to make it an apples-to-apples comparison by factoring in both upside potential and downside risk.
Company match on a retirement plan is the first investment route to take. It’s zero risk and 100 percent return. No one has ever filed bankruptcy from participating in their retirement plan and benefiting from the company’s matching contribution. Those who seek to be real estate investors, you have to consider leveraged risk, vacancy risk, default risk, repair risk. In its best days real estate appreciates at an average rate of 4 percent per year. 100 percent return beats 4 percent return.
There’s a time and a place for real estate, individual stock, and Bitcoin investing. It’s important that you build your financial house in order starting with the foundation. For if you build your financial house out of order and take on investments without properly considering both, the upside potential and the downside risk, the walls of your financial house will eventually cave in.
Building your financial house in order is getting your spending under control, your debt levels low, having a fully funded emergency fund, actively saving for retirement and your children’s college. That’s getting the core of your financial house together. Once you establish your core, you can explore with more aggressive tactics like individual stocks, Bitcoins, real estate, etc. By the way, 79 percent of everyday hard-working millionaires said they amassed their fortune investing in company-sponsored retirement plans.
(Damon Carr, Money Coach can be reached @ 412-216-1013 or visit his website @ www.damonmoneycoach.com)