Why I Find the Statement "Invest Only What You Can Afford to Lose" to be Very SELF-DEFEATING
Back then, I remembered being told to invest only money I can afford to lose. I would confess that's really very bad advice. I decided to dig out an old article from The Philippine Star by Rose Fres Fausto who had written these words of wisdom:
I cringe whenever I hear this advice. Why? Because it is a bad advice! Imagine if Uncle Warren Buffet followed that advice. He wouldn’t have become the world’s best investor. Okay, let’s get more real. Imagine if the regular Juan and Juana would follow that advice. Both would never get to say, “I am ready to have a decent retirement.” And that is even after they have set aside savings religiously from the time they started working! Inflation would have eaten up the purchasing power of their savings leaving them feeling kawawa despite being conscientious in following the first basic law of money, “Pay yourself first.”
It should be remembered that yes, all investments have risks but to invest only the money you are willing to lose? Come on. That is like saying “do not invest!” I am not willing to lose the money I invest. I am willing to take calculated risks.
If we're talking about investing only what you can lose--it's just like gambling. This reminds me that I previously wrote a post on the irony of gambling but not investing. The big difference between gambling and investing is this. Gambling is all about getting ready to lose that money should you lose the bet. Investing is all about getting ready to receive more returns even if there will be losses. Some may lose money to a bad customer (it happened to me) or make a bad deal with direct stock trading. In stocks, there's the index fund alternative which Warren Buffett also recommends. I prefer to use the index fund than direct stock trading due to having low risks. Sure, I'm willing to have an aggressive portfolio but being moderately aggressive--I'd probably prefer to put PHP 1,000.00-PHP 5,000.00 depending on the NAVPU rates.
If the issue is about stocks--there's always the problem of jumping into it without knowing it. Direct stock trading has its risks. The general rule for traders is to buy low and sell high. Another rule is to do research on the companies you're investing into. Are these blue-chip companies or companies that have stocks but aren't doing well? Some people experience losses in stocks by not following the stock guidelines than because of the stock market. It's like you drive a well-functioning car but you fueled it with impure gasoline or you microwaved your smartphone.
With that, that's why I felt a better way to say it (and others before me and after me) would say, "Invest only what you don't need right now!" In short, set aside a budget for investing. It's like you get your paycheck. For entrepreneurs, it's their profit sharing or monthly allowance as agreed among business owners. Business owners may agree to receive their monthly allowance for personal expenses while the rest of the profits are kept in a joint account. Regardless, we know there are bills to pay and families to feed in the process. We would need to understand that there's money set aside for necessities. So investing the money set aside for necessities is absolutely not recommended.
Any sensible person always expects temporary losses such as paying utility bills (phone, electricity, water), tuition fees, any loans they may have needed, and the like. Now, everything's settled and if one's not spending too much--one still has some generous amount of money left. Maybe, the family may want to order Mang Inasal because it's cheap and delicious plus it's a Sunday. Some of the best foods aren't expensive either. However, one may think about setting aside money for investment. It's like how AXA's Chinese Tycoon Fund requires PHP 3,000.02 per month to keep the investment going. This PHP 3,000.02 per month is not set aside for Axie Infinity where returns have a very low guarantee. It's because if I bet PHP 3,000.00 per month--I expect to lose more than to gain more of it. It's set aside for AXA which is there to help with insurance policies. Take note that insurance is more on emergency funding and not for future personal enjoyment. The Variable Universal Life insurance is to protect your loved ones and not for personal enjoyment. Money set in Axie Infinity is expected to be lost when you lose a match. It's no different from a fraudulent insurance company that promises things too good to be true. AXA is registered, monitored, and any temporary losses are spent on the insurance side and are dependent on the stock market performance for some investments.
Another new piece of advice is to get an index fund. With ATRAM, Seedbox, and the ever-convenient GCash, I think about GInvest. Some think investment requires huge amounts of money. However, some investments may require only a minimum of PHP 5,000.00 to PHP 10.000.00. Maybe, any sensible person who lives paycheck to paycheck may be surprised at how much money they've saved. The children may be wanting to go to Mang Inasal or Jollibee. However, the breadwinner says, "No, not this time. We're going to invest for your future." Maybe, he thinks the monthly PHP 3,000.02 to AXA is too heavy so he decides to start with UITFs that start off with only PHP 1,000.00. What he does is to start a UITF account of his choice (maybe lower risk) then he starts to set aside PHP 1,000.00 per month or invest more than usual if the market is at a low. What the person is doing is, "This money isn't needed now but I'm investing it for money I need later." Eventually, if the family all develops better habits--they may start to invest PHP 2,000.00 per month if the market is high and PHP 4,000 if the market is low.
One thing I felt like saying to myself is, "Do I need this or not?" especially if I've had money saved for it. I remembered wanting to buy this and that with my money but I kept saving up the money. What I did was replace money for wants with investments. Two years of savings for a specific want were transferred to investments. I find I want to buy this and that but I decided to invest some money in the index funds. My target was to reach a specific amount for the Philippine Equity Smart Index Fund. Now, I reached my target goal (for now). I find myself wanting to buy this and that and I realized, "Do I even have time to enjoy it? Nah!" then I decide to set that money aside to be placed in that index fund. I may decide to put money in the feeder funds (for now) since I reached my momentary target--but only if the feeder fund's NAVPUs are lower. Though, I might sell off some investments when they're high while focusing on adding PHP 1,000.00 per month to the Philippine Equity Smart Index Fund.
What I'm investing is not money I can afford to lose. Instead, it's to be invested with valid financial groups like Seedbox and ATRAM. GInvest is using these platforms to power it. Of course, it'd be crazy to invest all my savings at once. It's because some of my savings are meant for emergencies. I can't just sell my index funds to pay hospital bills. Instead, I should claim my Healthmax should ever, God forbid, I get hospitalized. That's why it's all about a diversified portfolio. Have insurance? Check! Have investments? Check! I'm expecting some maturity a few years from now. While at it, I might plan on how to reinvestment any maturities. It's not because I can afford to lose it. Rather, it's because I set aside money for investments to curb my spendthrift tendencies. I also set aside that money for future returns as a form of security.
References
https://www.philstar.com/lifestyle/health-and-family/2018/01/24/1780635/invest-only-what-you-can-afford-lose-bad-investment-advice#:~:text=the%20long%20run.-,The%20advice%20%E2%80%9Cinvest%20only%20what%20you%20can%20afford%20to%20lose,market%20is%20not%20for%20everyone.
