Daring to Grow: The Case for Risk-Taking in Young Investors'

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Early ski season ⛷️

This morning, I found myself sitting at my desk with my coffee, gazing out at Vancouver's north shore mountains draped in their first snow of the season. And my mind wandered straight to the slopes: "Is today the day for those first daring ski runs?"

Early-season skiing is a gamble. Sometimes you hit the jackpot with perfect snow and no lines. But this year? It's more like dodging rocks and hoping you don't end up on the wrong side of a snowdrift.

Taking that risk, though, is kind of our thing as young, adventurous souls, right? We're all for braving those slopes for the thrill of fresh powder and empty trails.

But here's the kicker: when it comes to investing, I've noticed a complete 180 in attitude.

I hear friends say things like, "Investing? Nah, not for me," or "Too risky, I'll stick to my savings accounts"

Case in point: A buddy on a recent golf outing confesses he's sitting on over $200K in his checking account. "Too risky to invest right now," he says. And I'm there, thinking, "Man, at least get in on that 4% return with Wealthsimple or something!"

It got me thinking – why do some of us dive headfirst down the ski slopes but freeze at the thought of investing our hard-earned cash?

The answer might just reveal a lot about what separates the go-getters from the stuck-in-the-muds.

The Comfort Zone and Its Limits

Picture this: a few summers ago, I had just sold an e-commerce website of mine, I say website because it wasn’t big enough to be considered a business, but I was riding high and wanted to celebrate, so the move was my first ever Coachella.

Now, I've not always been the ‘play it safe’ guy, but at this moment in my life I was trying to get organized. In my mind, the festival would be great way to relax, listen to good music and reset. It wasn’t a party for me, but a relaxing weekend with plenty of sleep, after all the festival ends around 10pm each night and a morning with good food and sun would do me well.

On the first night, we kept it relatively chill with the idea that we have 3 big nights ahead of us, lets make it last.

On the second night though, things changed. My friends were gearing up for an after-party – one of those once-in-a-lifetime, impromptu gatherings where 'you had to be there' moments are born. I, however, decided to call it a night, thinking I'd already had my fill of excitement and sticking true to my ‘relaxing festival’ idea, whatever that means.

The next day, I heard all about it. They ended up at a party with a bunch of artists from the festival and met an up and coming DJ (turned out to be John Summit), mingled with influencers who shared incredible life stories, and even bumped into a couple of celebrities who were surprisingly down-to-earth, apparently.

They were buzzing with stories and connections that seemed almost surreal.

As I listened, a realization hit me hard.

It wasn't about being tired – I had missed a golden opportunity to step beyond the usual. I had played it safe, missing out on the spontaneous, unpredictable joys that life throws our way.

That experience was a lesson, much like investing. It's not just about showing up; it's about diving in. And when you’re young, this can’t more more true. You have less responsibilities holding you back. If something doesn’t work, that’s okay because you can try again and again.

Taking risks can lead to extraordinary experiences, both in life and in your portfolio. That day, I promised myself not to shy away from the after-parties of life.

From Coachella to Portfolios: Overcoming Risk-Aversion

It's human nature to prefer safety over uncertainty, to choose the known over the unknown.

This inherent risk-aversion often leads us to opt for 'safer' investments, avoiding the volatility of stocks for the steady predictability of bonds or savings accounts.

However, just as I missed out on a once-in-a-lifetime experience by playing it safe at Coachella, this conservative approach in investing can lead to missed financial opportunities.

Young investors, especially, have the advantage of time – the ability to recover from market downturns and benefit from the long-term growth potential of riskier assets.

By letting our fears dictate our investment choices, we potentially sacrifice significant growth. A diversified portfolio with a mix of assets, including some higher-risk options, often yields better long-term results.

Understanding Risk vs. Reward

Skiing in fresh powder is a perfect metaphor for risk vs. reward, especially for the younger generation.

Picture young skiers traversing through the trees to ride the untouched powder of last nights dump – it's risky, sure. There's a chance of falls, getting stuck, or even injury. But, the rewards? Exhilarating runs, unmatched experiences, and the thrill of navigating through that fresh snow.

Young people, like these skiers, have certain advantages.

They're generally stronger and more agile, able to maneuver through powder with more ease than older skiers. If they fall, they're more likely to recover quickly, thanks to their youth and resilience.

Older skiers might be more cautious. They have responsibilities – mortgages, families – and an injury could have far-reaching consequences. They're more likely to stick to groomed trails, avoiding the risks of powder skiing.

This analogy translates well to investing. Young investors are in a position to take on more risks. They have time to recover from market dips and can gain enormously from the high rewards of riskier investments.

Older investors, much like the cautious skier, might prefer safer options, protecting what they have built over the years.

For young people, the financial 'powder runs' are worth the risk – they have the strength to navigate them and the time to enjoy the ride.

The Power of Time

Back in 2013, Bitcoin was this enigmatic 'digital gold' mostly talked about in hushed tones. It was the Wild West of investing - exciting, uncharted, and, to be honest, a bit scary. I was young, curious, and ready to dip my toes into this new world.

With Bitcoin being the talk of the underground (and not for all the right reasons), I decided to take the plunge anyways.

I bought a couple of Bitcoins for around $200 each, not knowing much but intrigued by the buzz. I used Quadriga, a site now infamous for its scandal (a story for another time). As a college student, the idea of holding onto something so volatile didn't sit well with me. So, after a few months, I sold them for a modest profit.

Fast forward, and the story takes a twist. Those Bitcoins I sold? If I'd held onto them, they'd be worth over $60,000. It's a classic case of 'what if.'

This experience taught me two invaluable lessons.

First, in youth, there's a unique opportunity to take risks and recover from potential setbacks. Time is a powerful ally in investing.

Second, the magic of compounding and patience in investments can lead to astounding results. Young investors have this incredible window to play the long game, where risks can transform into remarkable rewards over time.

Was the $600 I got from selling worth it? Back then, it seemed like a decent deal, probably spent on beer or protein powder. But looking back, that $600 pales in comparison to the $60,000 it could have been – a yearly salary for many.

A tough pill to swallow, but a crucial lesson in the value of patience and perspective in investing.

⚠️ Diversifying Risk ⚠️

In the world of investing, putting all your eggs in one basket is akin to skiing down a slope blindfolded – risky and ill-advised.

Diversification is about spreading your investments across various assets to reduce the risk inherent in the market.

Here's how you can start building a diversified portfolio:

1. Mix It Up: Include a range of assets – stocks, bonds, ETFs, and even a sprinkle of alternative investments like cryptocurrencies or real estate.

2. Sector and Geographic Diversification: Don’t just diversify across asset types; diversify across different industries and geographies. This strategy can safeguard against sector-specific downturns and capitalize on global opportunities.

3. Regular Rebalancing: As some investments grow or shrink in value, rebalance your portfolio periodically to maintain your desired risk level. If something is up over 20%, you might consider selling and buying an upcoming company with the profts. Don’t be scared to take profits.

By diversifying, you’re not eliminating risk, but you are strategically managing it, much like a skilled skier navigates through varied terrain.

What sort of risks can a young person take?

In the world of investment, my approach is a mix of caution and daring. Here's how I allocate my risks:

1. The Safe Bet: Over 50% of my portfolio is in the S&P 500 and various ETFs. It's the backbone, offering steady growth over time with little risk. Don’t get me wrong, playing it safe should be part of your plan, just don’t ALWAYS play it safe.

2. Wealthsimple 4% Cash Account: For daily expenses and liquidity, this account is a safe bet with a decent return. It’s also fun to use!

3. Emergency Fund: A crucial cushion for unexpected life events, a couple months of expenses should do.

4. Junior Mining: A high-risk venture, but I keep it under 10% of my portfolio. It's the wild card that could bring significant gains. You have to keep up with news and companies for success, but 10x gains aren’t uncommon.

5. Real Estate 🏠: I own my home, and in Vancouver, BC that’s an investment. With average growth being more than 10%/yr on your homes value, your able to leverage a down payment into a much larger asset that has no signs of slowing growth. If you can’t afford a home yet (don’t worry, you’re not alone), check out Addy, where you can invest in real estate with just $1 - I’ve been using them for years and their platform is amazing and fun to use.

6. Crypto: The dollar-cost averaging strategy is used to mitigate the volatility inherent in cryptocurrencies. It's a small but high-risk portion of my portfolio - don’t want to miss out on $60k again.

The Takeaway

Reflecting on my Coachella experience and the Bitcoin that got away, I've realized that while it's essential to have stable ground beneath your feet, you also need to leave room for the thrilling, unexpected twists of life.

Whether it's skiing on fresh powder, navigating the ever-evolving crypto market, or investing in high-risk junior mining ventures, the key is to approach these opportunities with both enthusiasm and a well-thought-out plan.

If you’re a young investor, you’re in a unique position to take these risks, learn from them, and potentially reap significant rewards.

Embrace your youthful advantage, diversify our portfolios, and keep our eyes on the horizon, ready for the next adventure life throws our way.

👋 Colton, Stock Monster.

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