Is It Really Bad to Touch the Investment Principal?
How defensive are you about the money you invest?
The concept of “protecting the boss” isn’t just for bodyguards. When it comes to money, this means that you have to protect your investment.
That’s a good way of thinking, isn’t it? You invested this hard-earned money and took the risk of investing it. The yield will fluctuate, but you want to keep the amount you invested.
Whatever happens to earnings is cool. If you want to take that money and reinvest it, go for it; if you want to withdraw the money you have earned and buy a car with it, you will still have a manager ready to continue earning.
On his RadReads website , former Wall Street investor Khe Hee writes that protecting the principal seems to be a big deal. “But it can be a self-limiting strategy when it comes to changing careers, becoming an entrepreneur and investing,” he says.
Huy cites the example of Elon Musk, who could not decide whether to invest in Tesla or SpaceX. He ended up depleting his funds to split the money between both projects because he wanted to give both of them a chance, rather than favor one and let the other fail.
Elon Musk is perhaps a disappointing example. But Huy brings it back to reality with his own example of leaving a corporate job. If he had protected the director, he would have had a shorter runway for his foray into entrepreneurship to succeed. And he would have to work longer hours on his business to make a profit faster, which would contradict the goal of leaving work: so that he can spend more time with his young children.
So he took more risks, made a plan with his family, and fell into confidence.
Of course, there are several variables here. Huy knew he could cut his expenses instantly if needed. He was also confident in his children’s college funds. He incorporated these factors into his plan.
“It can seem crazy to an outsider not to defend a principal,” Huy admits. “But continually reinvesting in your own human capital – over a long period of time – may be the most cost-effective decision you can make.”
Risk is something that you will have to overestimate as you grow as a saver and investor. Maybe the thought of cutting five or 10% of your principal makes you nervous. But what conditions or opportunities will allow you to dive this far or deeper?
Even if you have not reached this point today, it is worth considering what you value now before these values are tested by circumstances or opportunities.