In today’s Exponential Investor

  • Don’t let the market intimidate you
  • Investing is more than just stocks
  • Keep some cash on hand

When markets are turbulent, it can be hard to know what to do next.

As your investments dip and dive, there can be an overwhelming urge to sell everything and wait for things to settle down.

Markets are wild creatures. Up days are great, but down days can hit hard.

Rather than retreating, think of falling markets as a chance to recalibrate.

As Sam and I discuss here, a stock market sell-off gives you the chance to pick up companies you may not have been able to afford before.

In addition, it allows you to sit back and really look at your investments. You can take the time to assess what you’ve got and start building the foundations of your investment portfolio.

You can do this on your own

The most important thing to know when starting out is that you can do this on your own.

By conducting thorough research and taking the time to plan your investments, you can avoid paying a fortune for financial advice, which often results in “cut and paste” investment information anyway.

The financial industry is heavily geared towards confusing you with a bunch of terms no one in the real world uses.

It’s designed to draw you in, leaving you to believe it’s ‘too complicated’ and best left to a professional.

That’s not the case. Once you get past the jargon, you’ll surprise yourself with how quickly you adapt.

Last week, I showed you how to get started with stocks, what to look for, and how your career can be useful when it comes to stock selection.

Today, let’s round it all out by looking at what other investments you can include.

A portfolio contains more than just stocks

A balanced portfolio is one that invests across many assets.

That’s why I believe investors should consider splitting their money by putting:

  • 50% into stocks
  • 10-20% into gold and silver bullion, cryptocurrencies, or an even spilt of both
  • 10-20% into cash
  • 10% into bonds
  • 10% into “fun” money.

Let’s start with gold and silver bullion. I’ve long been an advocate for investing in physical precious metals. The sort you can hold in your hand.

Not gold or silver exchange-traded funds (ETFs), but the actual metals you can touch.

Why? Gold is like an insurance policy. It can’t be manipulated or devalued. The purchasing power of gold endures over decades of central banking policies.

You see, the price of gold doesn’t go up. It’s the value of your dollars that goes down.

That’s why the cash in your wallet buys you less… yet gold can buy the same thing many years later.

So, how much gold and silver should you hold? Well, again, the exact ratio is up to you. Silver is much cheaper to buy, at US$22 per ounce, so it’s a lower-cost way for new investors to start with bullion.

If you want to have both gold and silver bullion, aim to have about $1,000 worth of silver to $10,000 in gold.

Cryptocurrencies may offer a similar benefit to gold in the future. Exponential Investor co-editor Sam Volkering has written a report on three cryptos you should add to your watch list this year.

Cash is king

Cash is king. And crucial to any investor’s portfolio.

People have been conditioned to think that their money needs to “work” for them, and that cash at the bank is simply money doing nothing.

Again, that’s a myth.

Cash in the bank is power.

The odds are that any cash at the bank is earning next to no interest these days, but cash on hand makes you nimble. It gives you the chance to seize on a good investment when you see it.

A chunk of your investing money in cash means you can move with the market. That’s perfect for times such as now, when the markets are selling off and creating investing opportunities.

Some people like to keep a bigger buffer than others, depending on the stock market conditions.

Think ahead

Finally, this brings me to “fun” money.

What is fun money when it comes to investing?

Treat this pool of money differently to your cash allocation.

The fun investing money doesn’t have to be about something that will bring you a financial reward immediately.

This is the money you set aside to invest in ventures you think could be a good idea. Maybe a small amount could go towards a great start-up idea a friend has in return for some interest in the company. If you are going to put money into a friend’s venture, don’t be afraid to get some legal documents drawn up in the process.

A couple of hours spent on legal fees can drastically change any long-term outcome.

“Fun” investing money could be used in your community, on art… or on yourself.

We spend so much time thinking that our investments must make even more money that we forget the whole point of investing is about protecting “future you”.

Sure, future you does need to be taken care of financially.

But you still need to get yourself there. Investing in “things” that may not provide a financial reward is all part of the process.

One final tip

The final point to remember for today is that there is no such thing as a “set and forget” portfolio.

That’s a quick way to end up exactly where you started. Or, worse, broke.

That doesn’t mean you need to watch the market every day.

What it means is that you need to set aside time each week or month to check that your investments are on track.

Once a month, look to see if there is any news on companies in which you have shares. This has two purposes. You keep on track with what your investments are doing, but, also, the more frequently you review things, the more comfortable you’ll become with market movements.

Above all, remember stock markets and investing are a long-term journey. Don’t invest for quick wins. Rather, the aim is to build wealth over many years.

Until next time,

Shae Russell
Co-editor, Exponential Investor