Ask Doc You toss a coin and bet $100 that it will land on heads.
What's the likelihood that it will? Since a coin has only two sides, you've got a 50% chance of doubling your cash with that bet.
But you also have a 50% chance that you'll walk away with nothing.
That 50% chance of losing is called the "risk of ruin"... the probability you'll lose most or all of your capital on a bet.
Unless you're a gambler, you probably haven't heard of this concept before. But it applies to the stock market as much as it does to gaming tables.
When you make an investment, think about your risk of ruin on it. What's the probability the investment could fall to zero... or far enough that it's unlikely you could recover your losses?
Once you've considered that, decide if you think the investment is worthwhile.
You can lessen your risk of ruin. We've talked about how to do that here before... like making sure you don't put too much of your wealth in a single investment or type of investment... and investing in the types of companies that are likely to be around paying income to shareholders for decades.
Stop losses are another way to reduce your risk of ruin. In my Retirement Millionaire newsletter, we usually put a 25% hard stop on our stock recommendations. For example, if we buy a stock at $10, we'd sell that stock if it fell below $7.50. That limits our loss to 25%.
Of course, the trouble with always playing it safe is that you lose most of your potential to make big gains.
That's where a "play money" portfolio comes in...
Play money is money that you can realistically afford to lose... the opposite of gambling with your rent money. This "play money" is the part of your portfolio that you can use for riskier investments, like penny stocks or cryptocurrencies.
Longtime readers know that I'm a crypto skeptic. There are people who have made their fortunes investing in cryptos. But some cryptocurrencies are downright dangerous if you don't know what you're doing...
Despite the dangers, lots of readers want to know how to invest in cryptos. I admit, I'm no expert. That's why I recommend folks to Stansberry Research's in-house crypto expert, Eric Wade.
Eric knows all the biggest players in the cryptocurrency industry, and he understands the scientific technicalities in a way that only angel investors, computer programmers, and software engineers can match...
If you tried to do this kind of research on your own, you'd have to travel thousands of miles a year and spend thousands of dollars on tickets to crypto conferences where the best coins and tokens are unveiled.
Instead, every month in his research service called Crypto Capital, Eric does all that work for you. He simply hands you the names of his best crypto recommendations, along with his in-depth analysis each month, based on intense due diligence nobody else is doing at this level.
Earlier this week, Eric hosted the "2024 Crypto Melt Up." At this free event, he explained why a cryptocurrency surge is on its way and how folks can best position themselves for massive gains.
Click here to get all the details.
Now, let's dig into the Q&A... As always, keep sending your comments, questions, and topic suggestions to [email protected]. My team and I really do read every e-mail.
Q: It's a little curious that you didn't mention Consumer Reports for a truly unbiased and objective evaluation of cars. Certainly should be a part of anyone's search. – J.B.
A: J.B. is referring to a recent Q&A fielded by our in-house car expert Brady Holt about how to know which car reviewers to trust. Brady will take this one...
I (Brady) am a big fan of Consumer Reports (as is Doc). It's one of the many sources I consider when I'm researching a car.
My main objection is that Consumer Reports doesn't factor price into its automotive evaluations. I've seen some cases where its "top pick" earns only a marginally higher score than a competitor costing thousands of dollars less.
So like I recommended in my previous answer... use its reviews and top picks (along with any other ones you trust) as a starting point. They can help guide your own search using your own criteria.
By the way... Doc's Retirement Millionaire subscribers can also hear more of my own automotive takes. As subscribers know, along with investment recommendations, this publication includes a monthly feature called "Secrets of the Retirement Millionaire"... short tips about your health and wealth.
This week, we began including a "Car of the Month" in this feature. Each Car of the Month will be a notable model that I'd like subscribers to know more about... for better or for worse. This month, I introduced a subcompact crossover SUV with high-end styling, unexpected interior room, and a starting price of just $22,400.
Existing Retirement Millionaire subscribers have access to everything in our latest issue right here. If you'd like to get on board, click here to learn more.
Q: Why can't I just look up basic financial information like [price-to-earnings (P/E) ratio], [free cash flow], and [return on invested capital] from sites like Yahoo Finance? – H.K.
A: You can... Basic financial sites like Yahoo Finance usually have the P/E ratio and the free cash flow data available. For example, if you want the 12-month trailing P/E ratio for, say, Walmart, Yahoo Finance has it on the summary page. Free cash flow would be in the cash flow statement.
If you're looking for more in-depth data and your broker doesn't have it, another good source is Morningstar. You can find all those data points on a company's valuation there. (Here's a look at Walmart's valuation data.)
What We're Reading...
- Did you miss it? Are you prepared for the "big one"?
- Something different: Here's why deserts get cold at night.
Here's to our health, wealth, and a great retirement,
Dr. David Eifrig and the Health & Wealth Bulletin Research Team
April 12, 2024