Plausible expectations for an investor

What can we expect from our money

The most reasonable thing to do with our savings is to try to invest them. But Where, How?

As always, the answer will depend on several factors. It depends on our investor profile; we are sure to find differences between the Wolf of Wall Street and an elderly retired couple. That is to say: On our level of knowledge and acceptance of Risk.

Basically, it is that: Knowledge and acceptance of risk. Nor can we forget that it will take time like any other complex activity in which there is also a lot at stake!

Knowledge

If we had a thorough knowledge of accounting and the financial statements of publicly traded companies, it would be reasonable to move our money and invest it in stocks.

If we were experts in macroeconomics, we would study the fundamental values to detect trends and invest in fixed income, equities, commodities, etc.

But if you are no expert. Please don’t trust anyone. There are no neutral advisors, no free advice, no opportunities falling from the sky. There are no African princes willing to put their fortune in your hands, nor will you find the next crypto project that will grow by 10,000%. That’s simply not going to happen to you.

I guess you get my point.

Acceptance of Risk

No matter how much knowledge we have and how much information we accumulate. Any investment carries a risk. In some cases the Risk is minor, while other investments are pure nitroglycerin.

I am not discovering any golden rule by stating that the more risk we take, the higher the profit potential. For example; investing in Fixed Income is less risky than investing in bitcoin. That does not make bitcoin a worse investment because it is much, much riskier, nor does it make fixed income because it is much, much less profitable.

Many experts, or most, or any of them, will recommend diversification when investing. The idea behind this mantra is to de-correlate our investments. Don’t put all your eggs in one basket. Personally, I don’t agree with any of the mantras that everyone repeats, but in this case you have to admit that it makes some sense.

But What, Where, How

Granted, you are not a professional but you have to decide where to invest. I’m afraid I can’t give you any answers, and I’m not a financial advisor so if I did I wouldn’t be able to advise you.

My point is that you analyse the basis of the investment that is most plausible to you. DYOR (Do your Own Research).

Simply analyse past performance, drawdowns, stagnation periods. And if you follow someone, it’s not enough that he or she is someone you trust. For God’s sake, ask for their track record!

Blinded by Greed

A very, very good investment can provide an annual return of 15% to 20%. I personally find any promise of higher annual returns very implausible. By default, I don’t believe it.

Note that we are talking about annual returns. That means that as an investor it is not a good idea to move your money from one asset to another from one month to the next. That impatience for results will bleed your potential returns.

On the other hand, it is a terrible idea to try to tame the timing of the market. I mean we find a good asset but because it’s on such a good run, we wait until it goes down a bit to get in. Or the other way around, it is in full drawdown: Good time to buy! Or as it is unstoppable, hey! You have to buy! Come on man, that’s a gambler’s mentality, not an investor’s.