Have you ever heard the investing advice:
“Only invest money that you’re willing to lose!”
It sounds reasonable, since there’s always a risk of capital loss in the stock market, right?
Well, I think it’s just bad advice (to a certain extent, of course).
Let’s start first with how much money are we willing to lose?
I’ll go first. Maybe $5,000?
Then what would I do with the rest of my money though?
Inflation
Money we use today, be it in our bank accounts or in our wallets, are known as fiat currency. This is currency issued by the government, without actual backing by an asset like gold (as it used to be). Fiat currency is only backed by the government and their promise to maintain the value of the currency.
Fiat currency is one of the causes of inflation, which refers to the drop in purchasing power of a currency over a period of time.