Gambling or Investing?

Are you gambling or are you investing? The reason I am bringing this up is, I had a recent prospective client come into the office. Up in the Petoskey office. And he started our meeting off by saying that he feels like he’s just gambling in the stock market. And it couldn’t help but get me thinking, you know, there are quite a bit of similarities between gambling and investing. Right? You know, you’re putting your money to work for you and you’re taking on some sort of risk and there’s uncertainty involved in the result. You know, with that money. Okay? But, you know, the more you think About gambling versus investing, there is some huge differences there. Okay? And that’s what I want to talk about today. So, gambling, okay, we all know this. Probably pretty well, right? You go to the Casino, you pull down, and you’re hoping you’re going to get some money, right? You sit at the poker table, you’re making your bets, maybe it’s online, you know sports betting or something like that. You know, you’re doing that purely for entertainment, okay? Yes, there’s a huge risk there and there’s also a potential for a great reward, okay? But you could also lose it all. Now, investing on the other side of things, that is more about long-term growth, okay. It takes patience. You’re not trying to get rich quick over the weekend. It’s something, where when you’re investing, you want to solidify a plan for the long-term. Okay. So going back to this gentleman that brought up gambling, versus investing, the main reason that I feel, that he thought his investing was like gambling, is because he didn’t have a plan in place. Okay? He didn’t know what he was trying to accomplish, what he was doing with his money in the stock market, okay. And so, what I did, is I helped him develop and investment plan. Okay? And there is, everybody’s investment plan is going to be very different. Okay. And here at Centennial Wealth Advisory, we customize your investment plan based on how much risk you are willing to take. Okay? And for this gentleman, he was more of a moderate conservative investor. He didn’t want to take on a ton of risk. He was okay with sacrificing some of those high rewards, for the safety. Okay. And one of things I like to do when we’re talking about diversifying investments and setting up that investment plan, is going over the old bucket approach. Okay? And basically it’s separating your money into three different buckets of money. You have the no-market-risk bucket, which is money that can’t go backwards, can’t lose but gives you a specific rate of returns. Okay. Now with that bucket, you’re giving up the higher potential that you could get with the stock market returns. And then for him, we also used the conservative bucket and then a growth bucket. And basically what we did, we divvied up his portfolio and we put a third of his money in that no-market-risk bucket, a third of his money in the conservative bucket, and then a third of his money in the growth bucket. Okay. Now, within that no-market-risk bucket, he used different annuity products, that guaranteed that he wouldn’t lose any money. And it would spit out a specific rate of return and also allowed him to track the market in a sense and pay the cap rate. So it proved downside protection so he wouldn’t lose his money and also the ability to get a great rate of return and participate in the market. And then the conservative and the growth piece, he understood now that hey, a third of his money is more conservative, so yes, it’s going to go up and down. But it’s not going to fluctuate as much as the growth bucket. And that third in the growth bucket, he views now as long-term money. He knows that, yeah that growth money is going to fluctuate and go up and down a lot. But over time, 10, 15 years from now, hopefully the market cooperates, that growth bucket is going to show some great returns. So now, this gentleman, he understands. He is no longer gambling, right. He has a plan. He is not going and trying to trade based on headlines in the news or based on what a friend says because, hey, this is the new hot stock. He’s got an investment plan. And that’s something where, if you feel like you’re gambling in the stock market, right now, you shouldn’t. Okay. You need a plan. That will help you feel like you’re investing once again. So if you have questions on that, don’t hesitate. Schedule a free, no-obligation consultation. We’ll be happy to go over your investment plan with you and help you plan to retire well.