Singles- No Home Runs

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When it comes to investing, I believe it makes sense to hit singles and never strike out rather than trying to hit home runs and striking out sometimes. If you can avoid big losses, you’ll likely do better over the long term than if you sometimes do really well and sometimes get slaughtered. Let’s compare Edward Steady, a level-headed guy who invests and gets a 10% annual return over 30 years to Shark McGwire, a guy who hits home runs and averages a 20% return but loses 50% once every 10 years – he’s hitting 90% – better than any batter in history. Where do they end up after 30 years? Steady Eddy has $1,744,940 in his account – slow and steady climbs, never knocking the cover off the ball but beating most people handsomely. Shark the home run king hits home runs 90% of the time but when he strikes out he loses 50% of his portfolio – he ends up with $1,717,132. In this high-stakes game, can you handle the psychological hurdles of maybe doing well or maybe not? I suggest keeping it responsible, staying in the game forever and never striking out. Here is the dilemma – if you have $100,000 and lose 50% you now have $50,000. In order to get back to your original $100,000 you need to make 100% on your $50,000. By definition, a 50% loss is equal to a 100% gain. Remember this one +100% = -50% when it comes to your money and investments.

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