Hotpot and investing are really the same thing
Hotpot always requires some preparation ahead of time. It’s a hefty meal. Similarly, when you’re getting ready to invest for the first time, you’ve done your research. But then one day, you just gotta do it.
When it comes to hotpot, the more the merrier. Same when it comes to investing-- how boring if it’s just 2 things! So for this scenario let’s imagine you’ve got 6 friends with you. Each friend represents a different investment type. And they each have their role in your portfolio.
High risk Harry. Likes to go straight for the spicy chilies. It’s delicious when things turn out right, but you might spend some time regretting it. You might sweat it now and then, but it’s delicious at the end of the day.
High risk investments can be volatile stocks that shoot up and down wildly. Maybe next year you lose half your money. But in ten years, it’s gained 10 times its value.
Short term Shawn. Gonna go dunk that thin-sliced lamb shoulder in. It’s in and out, cooked in 10 seconds.
Short term investments may be more volatile. They’re popular at the moment, but can depend on a lot of things, like who’s president. Currently with Biden in the US, people are betting on clean energy and cannibis legalization. The Average Joe wrote a really good analysis on weed stocks.
An even more short term example is you think a company’s done really well this quarter. You buy some shares betting that the stock will spike on the next earnings call, then sell quickly after.
Long term Linda. She’s happy just drinking the broth. It just gets better the longer it cooks. Maybe you’ll drink some at the end to finish off the meal, but since it’s the base you gotta hold off in the meantime.
These are the investments people like to hold for the long term-- ETFs, mutual funds, target retirement funds, individual stocks in industries like blue chips (that’s your Costco and Bank of America-- these companies are well known for stable and reliable growth). In tech, these can be large companies like Microsoft.
This stuff will grow steadily over the greater horizon. Although they won’t get any splashy attention like short term or high risk investments, you’ll find comfort knowing that long-term ones are more predictable. They’re not going to skyrocket all of a sudden, but likely won’t tank at the same time.
Low risk Lex. He’s throwing in those root vegetables. The ones you have to start cooking in the beginning because it takes forever. They don’t really do much and they’re separated from all the action. However, you reap the rewards at the end!
These are like bonds. The return is low, but it’s almost guaranteed, hence why there’s such little risk. Maybe Lex is a bit older and can’t handle the heavier stuff. Similarly, people close to retirement may prefer bonds more since they’re so safe.
Passive Pam. Every once in a while, she’s going to add in the leafy greens and the enoki mushrooms so the crew can take a break from the lamb. It’s a low effort job. Maybe the veggies aren’t the life of the party, but still nice to eat.
These investments are things like dividend stocks and real estate funds that are managed. You receive regular payouts. You’ll make extra cash without having to do work.
Alternative Ally. Likes to try new things. She’ll go for the beef tongues and that mysterious fish ball.
These type of investments aren’t commonly owned. Think art, precious metals, or companies seeking private funding. This can also be speculative, take crypto for example. It’s got tons of promise, but it’s still very early. Various risk levels, but offers options outside the stock market.
All of this makes for a bomb hotpot meal. As with every hotpot, no one’s going to be the same. Everyone has their own preferences of what they like and what they can handle. But at the end, it works out.
Getting Started
Popular investment advice is to diversify. For a balanced mix of risk and return, try not to put all your eggs in one basket.
If you don’t feel like doing all the work, the past few years have brought about great auto-investment products. For little to no fees, their algorithm will invest for you. They ask you things like your risk appetite and time range. These help determine the weights across different baskets, what to put in each basket, etc. Some like M1 Finance will even rebalance for tax-savings.
Here is what we use (here is why). Reminder that we manage the facebook group and blog all in our free time, so consider using our referral links below! Thanks and happy new year!
Top automated diversified investing:
Top DIY investing:
