Cat Stock Blog

Nothing to it, Motley Fool says. Just put $20 a day in stocks for the next 25 years and you’re all set. A few quibbles:

• Twenty dollars a day is Seven Thousand, Three Hundred Dollars a year. If you can spare seven grand after paying for houses, kids, clothing, health care, groceries, cars, college funds, etc., you probably don’t have all that much to worry about, financially.
• Say you followed Foolish advice and invested wisely in stocks for the past 25 years and had your million in the bank as of this time last year. Today you’d be down Four Hundred Thousand Dollars. Given that most most bubbles overcorrect to the tune of 80 percent, it’s not unreasonable to assume another 40 percent haircut in the next year. OK, so having 200k left over after the worst crash in history wouldn’t be so bad, but it wouldn’t exactly be fulfilling those Foolish promises of becoming a millionaire.

The surest way to pile up money in your investment accounts is to put more in than you take out. Stocks offer the promise of more rewards, but they also carry significantly more risk. Every stock can go to zero and you can lose all your money, just like at the casino.

I met a guy the other day who made an risky bet on building the business of his dreams and it cost him four million dollars. Entrepreneurs and professional traders lose this kind of money all the time; they share a common trait: major appetite for betting large, minor fear of losing large. If you’re one of those people, you ought to be risking it all on building that biz of your dreams rather than chasing paper profits in the stock market. If, like me, you have zero discipline and a tendency to panic, you’re better off in money market funds.

There are lots of ways to become rich; the stock market has disappointed far more than it has pleased, because amateurs buy tops, sell bottoms, get in/out at the worst times and have little/no concept of risk management. Not that the professionals have done that much better: this year they gave us the worst crash in 80 years (it’s probably no coincidence this happened after almost all the survivors of ’29 had died).

I’m all for saving $20 a day — but if you can avoid the temptation to think a penny saved is a penny earned and therefore justifiably spent on, say, a 52-inch plasma TV, you’ve got more self-control than most. Sure, the best things in life are free, but most of the next-best things cost money — it all comes down to how much next-best stuff you want to do without so you can have a few extra bucks in the bank.