I’m a big believer in putting your money into investments that are hard to unlock. A 401(k) is a great example of this. Yes, you can access the money, but not without some pretty severe penalties.
Most people do poorly investing in individual stocks. The only thing that’s gotten easier than buying and selling is panicking. It’s tough to tune out the noise and follow your plan when the media’s incentives don’t align with yours.
This is one of the reasons I’m drawn to real estate. While I trust myself not to panic, I don’t always trust myself to stick to a plan. It’s harder to quickly change course when owning real estate. That’s a good thing in my opinion.
It’s also largely why, after selling our first primary residence in California a few years back, I took ~$42,000 of those proceeds and put it to work in 18 small angel investment bets via AngelList. One of those investments, a $1,500 bet on Butterfleye, went belly up when they were “acquired” by Ooma the other year. It wasn’t an acquisition that made anyone any money. I think I received $47 back on that investment.
But today I received an email about the first investment I ever made out of these 18. A $2,500 bet on a company that builds a SaaS product to help companies with local brand management:
I made this investment in late May, 2016. So it’s been just over three years. My $2,500, according to the math above, should be $9,017.50 when including the release of escrow funds. That’s a 3.6x return in three years, or more than a 50% internal rate of return, which is utterly fantastic.
Obviously this isn’t life changing money for me, but it’s extremely cool to see one of these bets I made years ago come to fruition already. The return accounts for 21% of my total investment, and I still have 16 bets that could potentially pay off, some I’m quite excited about.
Could I have made this kind of return, or even better, investing in something else? Sure, I could have bought and held bitcoin, or a high growth stock, but it’s hard to hold stuff like that, where you can see price fluctuations every day, for a 3.6x return. It’s unlikely you could make this kind of money buying and holding real estate without actively doing something (e.g. flipping).
The most unfortunate thing here is that these sorts of investments aren’t available to everyone. Our government wants to “protect” us against making poor choices with our investments, and they think these sorts of high risk plays are only for “sophisticated” folks. I understand the concern, but I think there must be better ways to go about it. And it seems odd to make gambling, something that’s incredibly addictive, so accessible to what the government implies are less sophisticated individuals.