Our culture is fascinated with winning, from high-stakes activities like the Olympics or the NBA Finals to college football to even Little League games. It's how we've been raised and it's become a part of who we are. Even when it comes to money and investments, we are fascinated with winning. Whether it's picking the next hot stock or participating in exclusive "referred in only" investment opportunities a la Bernie Madoff, our goal is to win. So much emphasis has been placed on winning it's no wonder no one pays any attention to losing.
Your buddy is quick to share with you any big wins with his investments but doesn't dare discuss those major losses he's racked up. As someone who has traded stocks, options and E-mini futures, I can certainly relate to the psychological battle. But what if it were possible to win without losing? What if your investment or trading activities could be structured in such a way that you win by simply not losing? You would consider something like this a riskless way to invest or trade. Can such a thing exist? Absolutely! You just need to move past your blind spots and think outside of the box to make it happen.
A quick story will illustrate this concept. After years of losing money in the stock market, delaying retirement and seeing what was once a $2 million portfolio now only worth $1 million, John decides to pull all of his money out of the market and "park" it in a safe CD that pays 5 percent per year. After the first year of doing this, he takes the 5 percent yield from year one to gamble at a weekend Las Vegas trip. Figuring his retirement goals are all but dead, Vegas for the weekend was a welcomed treat for him.
After a weekend of gambling in Vegas, it turns out he had a lucky hand and returns back home with twice what he took with him. Monday morning he heads off to the bank to add all of that money to his CD so now he has $1.1 million in his CD as opposed to just $1 million. At the end of year two, he takes the yield from year two and makes a similar trip to Vegas. Surprisingly, lady luck is on his side and again he comes back with twice what he took with him. He took the 5 percent yield on $1.1 million, or $55,000, and returned with $110,000 from Vegas. On Monday morning, he makes another deposit to his CD account taking the balance from $1.1 million to $1.21 million
At the end of year three, you know the deal, he takes the 5 percent yield on $1.21 million, or $60,500, with him to Vegas for another weekend of gambling except this time around, lady luck is not on his side. He loses the entire $60,500. So upon returning home, he has nothing to add to his CD but as he reviews his statement, he realizes he still has $1.21 million safely tucked away in his account that will still earn a 5 percent yield for year four. The question to ask yourself is: If you were John, would you have taken your initial principal of $1 million with you to gamble in Vegas and left the $50,000 yield back at the CD?
If you said no -- and by God I hope so -- then the question is if you are investing for your future or trading for a living, why would you put your entire nest egg or principal amount you've accumulated after all of these years of working at risk in the stock or financial markets? Isn't that the same thing as taking it all with you to Vegas? The key to this strategy is finding the right place to "park your money." Managing my wealth this way allowed me to achieve financial independence at the age of 34 as well as avoid the market crashes of 2008 and 2009.
Apply these principles to help you win the money game! To learn more principles, grab a copy of my book, Winning The Money Game: Separating The Myths From The Truth - Everything You Don't Know About Achieving Financial Independence at http://www.amazon.com/dp/0985372303