That’s what our bank account read. Total. Checking and savings combined.
I stared at the number for a while, trying to remember if I’d ever seen my bank account that low… in my entire life.
Maybe when I opened a bank account for the very first time. But I can’t even recall what age that was let alone how much it was for. So for as much as I can remember, this was the least amount of money I’ve ever had in my bank account.
Now I’m not reminiscing about some low point in my life. I’m talking about this month. Like two weeks ago.
To be honest, it’s a little scary. I’ve never had such little funds readily available. I’ve always maintained an absolute minimum level of $10,000 – $15,000 just sitting in the bank. The good ol’ emergency fund. Typically, it never even gets used. But it’s there for safety.
So where did all our money go?
Where Our Savings Went
Did something happen that we lost our entire savings?
Not at all. I put our entire life savings — thirty thousand dollars — in STOCKS.
Well, technically I put it all in a brokerage account. What percent of it is actually invested in stocks is constantly changing.
Am I crazy?
Perhaps. But this was a very intentional decision that has been in the making for two years.
Why I Put All Our Savings in Stocks
In my last post, I talked about how I stopped trading with real money for two years until I could reach the $30,000 milestone. It was the absolute minimum amount I deemed necessary to make the trading game winnable for my active style of swing trading.
I am very intent on becoming a professional trader. Whether that means trading other people’s money, my money, or both is still yet to be seen. In order to trade for a living with my own money, I’ve calculated $500,000 to be the absolute minimum level I would feel comfortable with quitting my job and trading for a living using my own money. A million dollars would be ideal.
So I just have to become a millionaire first. Hmmm, that would be… less than ideal.
In order to get to that place, it’s pretty clear that trading other people’s money makes a lot of sense. That would definitely shorten the timeframe required to build up that critical mass. But before anyone will give me money or hire me to manage money, I have to prove that I can consistently beat the market… with a verified track track record… with real money.
So that’s why I put all our savings in stocks.
Therein also lies a huge caveat.
The Big Question
Can I consistently beat the market?
All of this assumes that I can. That is, by no means, an easy feat. In most cases, this should come with a “Don’t try this at home” warning as most individual traders lose money. Of course I ignored this warning myself. I’ve essentially tried this at home for seven years now. But that’s because I’ve never traded to make money.
I’ll say that again.
I’ve NEVER traded to make money.
That probably seems counterintuitive. Ultimately, I believe that mentality is what will separate me from the pack. I’ve always traded to LEARN how to trade successfully. I’ve prioritized developing the skillset while trying to minimize the cost of that education. That skillset is EXTREMELY valuable in today’s world.
Making money is simply a byproduct of learning to trade well. If I focus on the process, the results will take care of themselves. In one month of trading my $30K, I’ve essentially earned back my losses from my first couple YEARS of trading.
Many beginning traders are looking to turn $10K into $100K. They’ve heard stories or know someone who made insane returns in the stock market. They want in also. But there’s a survivorship bias there. Those people got lucky.
Someone winning a big lottery makes headlines. You know what doesn’t make the headlines? The millions of people that lost.
Same thing in the stock market.
Making insane returns means taking insane risk. If you do that long enough, the house will eventually win. Many people beat the market, but not many of the same people can do it over and over and over again.
While I was building up the $30K, I papertraded a fake $50K account, doing everything exactly as I would except placing the real orders. During that 13-month span from July 2016 to August 2017, I made a 26% return compared to the S&P 500’s 12% return.
And it’s not like I got “lucky” on a few trades.
This involved 224 trades (that’s right — two HUNDRED twenty four) with an average risk of 0.50% of my portfolio on each trade. I proved that I could have more winners than losers and an average winner would be be greater than an average loser.
To me, that shows consistency. Plus, I’ve tweaked my system along the way such that I’m better now than when I started.
On the downside, I would say a year is still not a large sample size in the world of trading. It was also buoyed by a bull market. And the biggest flaw — it wasn’t real money. But it did prove my “business model” so to speak. It proved my trading system can be a very profitable one.
Now the goal is to prove it with real money.
What are the Risks?
There are obviously some risks with putting all our savings in stocks. Let’s start with the most obvious risk…
Risk #1 – Losing Money in Stocks
I’ve developed my skill long enough that I feel very confident in my ability to not lose money. Of course, there are always going to be ups and downs along the way, but I see worst-case scenario after a year as break-even on my $30K and underperforming the market.
Which is exactly what the money would do in our savings account anyway.
We didn’t even make TWO dollars in interest the past year. In real money terms, that means our savings decreased. Yes, inflation is real. If I do worse than that “worst-case” scenario, I should realistically quit trading anyway.
Risk #2 – Not Having Money For an Emergency
After thinking about it more, I realized that this is really not an issue at all.
It’s not like we used all the money to pay down our mortgage. Or spent it all on a new car. Or put it in our retirement accounts.The money IS still readily available. If it is absolutely necessary, I could close all my positions and have the money back in our bank account in 3 business days.
What emergency can you think of that will spring up out of nowhere and need to be paid for in full and in cash in less than 3 days? In the age of credit cards, this seems highly unlikely. If a costly emergency were to arise, we could have the money back in our bank account a month before the real bill is even due.
That’s the beauty of stock liquidity.
Risk #3 – Not Being Able to Pay All Our Bills
Having only $1,286.23 total in our bank account doesn’t inspire much confidence. The good news is that this balance was the low point of the month and was strategically planned.
Almost all of our monthly bills are due in the first half of the month. I projected all our cash flows before moving our money to ensure we would be able to cover all our payments. Then I double and triple-checked the math.
September also provides a bonus in that it’s one of the two months of the year where my wife gets an additional third paycheck. That guarantees our low point in October will be much higher than September and will be further boosted by our additional net income in the month.
Hopefully, what I saw this month will be the lowest amount I’ll ever see in our bank account… in our entire lives.
Putting all our savings in the stock market is about so much more than simply looking to squeeze out some extra returns. It’s about expanding my career opportunities and opening doors to where I ultimately see myself. While at the same time not putting my family’s financial situation at risk. That’s why it’s taken two years to build up to this point.
Rather than focusing on making big returns, my focus is on developing the skill of trading and building a successful track record. Even if I make great returns on my $30K, it’s by no means going to be life-changing amount of money. In the grand scheme of things, $30K is still a really tiny account. A fabulous 20% return would still only be $6,000. And that’s before tax.
Proving that I have the skillset to make those fabulous 20% returns could put me on the path to managing $30 MILLION one day.