Hey guys,
I’m back in action with a November edition of my Roth IRA update! Here’s a snapshot from after market close today.
It’s been a few weeks since I last shared an update and there’s one topic that I really want to talk about.
In the last few weeks, I’ve read numerous stories about people getting rich from making early investments in speculative assets. One of the latest phenomenons is shiba inu coin – which seems to me like a spinoff of the dogecoin hype from earlier in the year.
The price of this digital token shot up rapidly just like dogecoin did and there were definitely millions made from some people along the way. However, one thing that constantly plays in my mind is the tendency to promote newsworthy at the expense of non-newsworthy story. For example, it’s exciting to read about how some 19 year old turned $800 into $500,000 by investing early in Shiba Inu coin. That person’s life has forever been transformed dramatically. But, it’s much less interesting to read about the thousands of people who lost money buying in on the way up to where that person sold, but didn’t get out in time before the drop.
Think about this for a second. How many people do you know in real life that actually became rich off of speculative crypto investments? How many people do you know that “dumped $1,000 in something” and lost it all?
Personally, I know of zero people in my life that have gotten rich from speculation, but I do know of multiple friends that dabbled in one of the “next big things” and lost all of their money. Am I implying that it’s impossible to do this? No – but I am saying that the odds of doing this are equivalent to hitting the jackpot at a casino and more often you lose money.
In college, I remember studying a concept called “tokenism” in the context of the economy and the “American Dream.” Tokenism is the application of an entire group or type of people to one or a few representatives of that group, despite or without acknowledging the complexities that group had to overcome.
One example of this is the poor or working class person that became rich through hard work. “If so and so can do it, anybody can” is a common mantra. While this technically may be true, it doesn’t speak to the statistical reality, which is people born into poverty are overwhelmingly likely to remain poor in middle or old age even in spite of a superior work ethic, compared to somebody born into wealth. Can anybody do it? Yes, but it’s misleading because statistically speaking they are significantly less likely. Walking one mile is much easier than running six miles while jumping over a hurdle every 100 meters.
In my opinion, this speculative investment hype amounts to financial tokenism. We hear about all of the stories of folks being successful, spreading the “if I did it, you can too” message without an actual analysis or acknowledgement of the percentage of people who failed at trying to “do it too.”
If you do speculate in these kinds of investments (caveat, it is very fun) – invest with the expectation that you’re gambling. If you’re up, understand that taking profits implies you will never time your profit perfectly.
Also, make sure you are familiar with a concept called the sunk cost fallacy. The sunk cost fallacy states that humans are inclined to continue to pursue something that they have invested time or money in, even if the reward is no longer worth their time or attention.
This phenomenon plays itself out in the stock market or crypto when we refuse to sell out of an investment at a loss because we want to wait for the investment to get back up to where we bought in at, even though the use of the remaining money you have left may be better spent elsewhere. Hint hint – sell the rest of your Dogecoin now and put it in the S&P 500. 🙂
That’s my rant for the month. I do have a portion of my portfolio in crypto, which are investments I consider speculative. But, I am expecting volatility and making sure that I don’t buy into this financial tokenism of the folks winning it all.
Now, let’s get to the good stuff. I have good news – my portfolio is catching up to the market!
- S&P 500 from January 4th – November 3rd: +26.02% ((427.25-339.03) / 339.03) x 100)
- My portfolio from January 4th – November 3rd: +25.81% ((56,994.87 – 6,000 – 1,123.75) – 39,641.18) / 39,641.18 x 100
I wrote a few weeks back when my portfolio was trailing the market by the most it ever had throughout the year that there was still time to catch up – but I did not expect to do it in spite of financial stocks outperforming. Companies like Tesla and CVS have catapulted me back into just about tracking the market for the year.
But.. Because my portfolio sports a dividend of about 1.5% higher than the S&P 500 annually, I am officially outperforming the market again on overall returns! I would love to say that I outperformed on both price appreciation and overall returns when I retire the 2021 portfolio, but I would gladly take a beat overall if it came down to it.
I hope the markets are treating you all of you well – happy all-time S&P 500 high!
Roth and Roll Finance 