Struck by Lightning
How much of your life savings is riding on one thing you feel certain about?
"Don't put more than 20 percent of your net worth into any one thing, because nothing is 100 percent safe."
Meet Simon. He sold his company for $300+ million and did what all the smart books tell you to do with the money: he put it in a fund that tracked the market.
After we sold the company, I went looking for somewhere safe to put the money.
I wasn't chasing anything exotic. No crypto, no buddy's startup, no high-return private deals. I picked a fund that tracked a market index. It looked like an index fund, it traded like an index fund, and I treated it like one. It had been around for years. It had billions and billions of dollars in it. This was not some fly-by-night thing. This was the boring choice.
The timing felt like a gift. A few months after we sold, the market started dropping, so I started buying. And as it kept dropping, I kept buying, because buying the dip is what every smart book tells you to do. This thing is going to come back, I told myself. I'm going to make a fortune.
By the end of my first month of being wealthy, more than half my net worth was sitting in that one fund.
Here's what I didn't understand. The fund didn't actually hold the market. It held futures and options, a machine of contracts built to imitate an index. I thought I was buying the market. And when the market hit turbulence a few months later, the machine broke. The fund collapsed. Completely. Billions evaporated, and nearly half my net worth went with it.
The mistake was never the fund. It was how much of my net worth I put into that one fund, and half was way too much. Lose 20 percent and you can earn it back in a year or two. Lose 50 and you're rebuilding for years. That kind of loss, that soon after the money arrived, almost broke me, and not just financially.
People tell me it was terrible luck, like getting struck by lightning. They're right. But I've stopped thinking about the lightning. You can't control where it strikes. You control how much of you it can hit. For me, that number is now 20 percent. It used to be half.
Up next · Lesson 02 The Safest Harbor A decision that looked prudent, and what it actually cost. Read next →