I’ve always been a penny pincher. Perhaps it’s because money was tight when I was a kid. Or it might be because I learned most of my money lessons from observing my grandfather, who came of age in the Great Depression. Or maybe I was just born this way.
Whatever the cause, I’m a real tightwad.
When I was younger, I would occasionally skip a meal or eat beans and rice for a week to save enough cash to max out my Roth IRA.
No kidding. I was that guy.
At some point along the way, I figured out that I couldn’t cheapskate my way into riches. Being frugal is smart, and it can help you save up the capital needed to invest. In the early stages of a business, keeping the belt tight can make the difference between success and failure.
But ultimately, there are limits. If you want to make real money, you have to get out there and earn it. Saving and investment only happen once we earn money.
I was pondering this when I stumbled across this tweet from C. Thi Nguyen:
One of the best pieces of advice I ever got, delivered by a wise person while I was fuming over a parking ticket:
"3% of your income is for mistakes. If it's too much over, you're too sloppy. If it's too much under, you're sweating the smalls stuff too much."
— C Thi Nguyen (@add_hawk) March 30, 2021
We’ve all been there. I’ve wasted days of my life protesting a property tax hike or, yes, a speeding ticket, when that time might have been far more profitable building my business or looking for new opportunities.
I’m not sure where the 3% number comes from. Why not 2% … or 5%?
But the spirit of the statement is spot on. And it’s applicable to so many facets of life.
The Power of That First Step
If you’re not willing to experiment, take a little risk, and accept modest losses, you cannot advance. It’s that simple. I’ve started a handful of businesses over the past 20 years. A few never made it past the planning stage. A few more withered on the vine. A couple have worked out well, at least by my modest standards.
But in every case, I burned through at least a little capital. I was always careful to keep my expenses under control, and even today, my total operating costs are only a couple of thousand dollars per month. But I was willing to spend a little to flesh out the ideas.
Nguyen points out that this doesn’t just apply to business.
In a reply to his own tweet, Nguyen points out that the vaccine rollout in the United States is going far more smoothly than in Germany, despite Germany’s reputation for order. Why? Germany is spending far too much time and resources ensuring that only eligible people get the vaccine, whereas the American approach tolerates a degree of line-jumping to kickstart the program.
One of my colleagues, writing under the pen name Michael Masterson, summed up this spirit in his book Ready, Fire, Aim. Planning is important. Control is important. But ultimately, you have to act.
It’s better to have a basic game plan in place and move forward, understanding that you’ll figure out the remaining details on the fly than to have everything perfectly mapped out. The real world doesn’t work like Ocean’s Eleven. If you wait for the perfect plan, you’ll never actually do anything.
So, what investing lessons can we learn from this?
Manage Risk When Investing
The first and most important thing to know is that it’s OK to take losses. You can’t be reckless, and you should always define how much risk you’re willing to take before the trade. But don’t be afraid to pull the trigger. You won’t know if your trading strategy works until you try it.
Different traders have different risk management styles. I’ve met several that never risk more than 1% of their portfolio on a single trade. I know others who are willing to risk a lot more than that. There is no “right” answer here, though I would say it’s smart to keep your potential losses small when trying out a new strategy. You should risk enough to stay interested in the outcome but not so much that a mishap or botched trade will set you back years.
Our own Adam O’Dell has built dozens, if not hundreds, of trading systems over the years. Many didn’t work out and never made it into production. Others have been rip-roaring successes with years of successful trades behind them. But he never would have known if he wasn’t willing to do the legwork.
I recently sat down with Adam to talk about one of his most successful trading systems, Home Run Profits. This system revolves around options, which get a bad rap for being “too risky.” But Adam’s research guides you through the world of options and how to manage that risk.
It’s worth mentioning that nobody else … no Wall Street firm, no institutional bank, no elite investor … nobody can take advantage of this strategy, other than those in the Home Run Profits community.
And Adam’s patent-pending system is so powerful, he guarantees that you’ll average 100% gains every month.
So, click here to see how Adam’s Home Run Profits strategy works and how he made it so simple it only takes you 15 minutes a month to use.
To safe profits,
Editor, Green Zone Fortunes
Charles Sizemore is the editor of Green Zone Fortunes and specializes in income and retirement topics. Charles is a regular on The Bull & The Bear podcast. He is also a frequent guest on CNBC, Bloomberg and Fox Business.