In Kapka Kassabova’s non-fiction book, Border, she describes Felix and Dominik as a couple of guys who dreamed of a better life. They bought a map in East Germany when a communist Iron Curtain still split Eastern Europe. The two men wanted out…to trek through the southern Bulgarian forest and cross the wall-less border into northern Greece. Freedom and, with some luck, financial fortunes awaited far from the Iron Curtain.
Most political borders weren’t Berlin-wall like barriers blocking Soviets, East Germans, Bulgarians or Romanians from crossing to the west. Instead of walls, rural wilderness bridged east and west, often patrolled by trigger-happy communist guards on foot.
Felix and Dominik hoped they could safely cross to the west. But they had a blurred sense of risk based on tales of success passed among their friends. This was FOMO’s luring call. It was more dangerous than today’s cryptocurrency fever, yet eerily similar.
Time usually burns investors who seek quick, easy spoils. Utterings of, “This time it’s different,” often end up haunting people for years. But every generation makes the same mistakes, tempted by “can’t miss” opportunities that appear to be making everybody rich.
This brings me back to Felix and Dominik. They knew several people who escaped from their town. Those people didn’t come back, so the intrepid duo figured they must have successfully crossed the border. Locals whispered stories about such great escapes, and perhaps the fortunes that they reaped.
But most of the escapees were deceived. They often began to celebrate as soon as they thought they crossed the border–much as someone might claim victory to see their cryptocurrency surge. But most of the eastern bloc refugees bought East German-made maps with fake border lines. Such was the case with Felix and Dominic, too. Believing they had trekked past the Iron Curtain, the pair spoke louder. They laughed. Instead of walking under the cover of darkness, they began walking during the day, often far from protective trees. This made them easy targets for roaming border guards. Tragically, most border crossers were shot right away. Others, like Felix and Dominik were imprisoned or tortured.
We can’t blame them for wanting to bolt for the west. Many lived dismal lives. But I suspect fewer would have risked it if they knew the true odds.
This relates to investing on several levels.
First, easy speculative gains are like refugees in the woods. When speculators (such as those in cryptocurrencies) see big, fast returns, they believe they’re in the clear. But unless they sell at a high, diversify their assets, and never venture back, they could risk losing everything.
Unfortunately, easy profits are addictive. Few people walk away, never to gamble again. It’s far more tempting to buy or trade crypto because the strategy seems to work. But mathematics is like an eastern bloc border guard shooting first and asking second: any number (no matter what the size) ends up zero when multiplied by zero.
Second, institutional investors have moved borders such as Bitcoin. As rumors spread that institutions are “buying” crypto, people are starting to consider them “smart” and “safer.” But that’s deluded thinking. Consider whose plates the institutions likely plan to dump them on. (Hint: unsuspecting retail investors). If that sounds cynical, it’s best to brush up on the sub-prime mortgage craze where the real pawns were the public.
Third, in the investment world, there is no Iron Curtain. That means, rather than risking hard-earned money on a get-rich-quick scheme, put academically, peer-reviewed financial evidence on your side. Steer clear of cryptocurrencies. Ignore their temptations. Instead, build a globally diversified portfolio of low-cost index funds or ETFs. If possible, add money every month. Like a sober pilgrimage, this journey to financial freedom won’t be quick. But it beats losing everything. Felix and Dominik would likely agree.
Andrew Hallam is a Digital Nomad. He’s the author of the bestseller Millionaire Teacher and Millionaire Expat: How To Build Wealth Living Overseas