Bandwidth Matching
Thinking about investing and my tolerance for volatility and risk
One of the first purchases I remember as a kid was a gray plastic toy horse I named Marshall. I wanted Marshall immediately, but I didn’t have $12 on hand. My Mom set up a payment plan and I bought the horse on credit.
I signed my name to the handwritten agreement that would allow me to pay weekly installments over six weeks and ultimately own the toy for about $13.50.
Turns out, I hated being in debt.
I immediately got to work doing chores at 10 cents a pop. Half a week later, I paid off the $12 in full, before my first installment. I swore I wouldn’t put myself in that situation again.
Around the same time, my Mom had another idea she called “Family Store.” She created a little banking system using dark purple and clear marbles, an interest plan, and a white laundry basket that she filled up with Pringles, jerky, slinkies, and glitter paint.
We could work for marbles around the house during the week, and spend them at “Family Store” on Saturday mornings.
There was an option that rewarded saving though. We earned one marble each week on every 10 marbles saved in the “Family Store Bank.”
As I experienced the sweet taste of my marbles growing in the bank, I hatched a little plan. I worked hard for about a month and deposited 110 marbles into my account. I kicked back and received a weekly residual income that covered my snacks and continued to accrue in my account.
“Family Store” went out of business soon after, but I got a taste of investing and I wanted to do more of it. I was itching to figure out “investing” in real life.
When I began learning about Bitcoin and heard stories about people “Living for free” on their Bitcoin, I remembered being a kid with my marbles and “Family Store Bank.” The idea of investing felt exciting back when I was a kid.
It sounded exciting when other people talked about it now, too.
But as exciting as the idea was, I wasn’t starting from the same place as the people sharing their experience.
I was starting from ground zero, or the basement, actually, if we consider my debt that I had to pay off, too.
The Basement
I cleaned houses through high school and put myself through college, mostly debt-free. But regardless of how much I worked, I ended up with a consistent string of small loans, car payments, or credit card debt.
Money lost any sense of being a tool I could use well and became the measuring stick that showed I couldn’t quite keep up, and I certainly could not get ahead.
By the time I paid off one student loan, the engine fell out of my car and I pulled out a loan to buy a car. Then back to school, another student loan, and another car repair.
I had the sense that money was something I just couldn’t quite get a handle on. I worked harder and paid off loans, but also accumulated other debt. I felt like a frustrated hamster running hard to nowhere.
Three Years of Transactions
My frustration grew, along with the sense that I couldn't get a handle on money. Finally, it became more uncomfortable to avoid the growing mess than to face it.
So about three years ago, I spent two and a half days slogging through about three and a half years of transactions from every account with my name on it. I organized each transaction until I had a pretty accurate picture of how I used money.
Over the next two years, I tracked my spending like I was in recovery. Slowly, I started having the sense that I was using my money, rather than my money running my life. I started seeing my finances as a tool.
A Strategy
My interest in learning to invest was back, and with it, the question of whether these ideas about Bitcoin could actually work for me.
But I didn’t have a track or a plan for figuring that out. It was like standing on the edge of the Grand Canyon and thinking the only way to the other rim was to jump. I just couldn’t. There was no jumping hard enough to get from one side to the other, no matter how much I wanted to be on the other side.
At the time, I was primarily learning about Bitcoin through the videos Joel Bomgar published each week. The list of videos landed in my inbox on Fridays and I’d listen while I drove around doing weekend errands.
His videos were full of practical information about things like how to buy bitcoin, how to send bitcoin to a storage device, and how to avoid falling for any scams in the process.
Occasionally, he discussed how people tend to think about risk or volatility, and when they tend to panic and make unprofitable investment decisions. It finally clicked for me in this video about riding volatility like a rollercoaster.
All investing comes with risks. It was better for me to invest a little and stay within my bandwidth for risk in order to hold it for the long haul rather than to invest more than I could stomach when the market dipped and the adrenaline rocketed.
I couldn’t control the market or the price of Bitcoin or even how I handled money in the past. But investing within my bandwidth clarified what was in my control.
There were two things I could do:
Buying Bitcoin
Hang onto it without puking it out into the market when prices drop.
There were two potential pitfalls:
Selling my Bitcoin in a pinch, out of necessity.
Selling my Bitcoin out of panic, due to taking on more risk than I could handle.
With that, I had a strategy and clear goals to work toward:
Create enough margin that I wouldn’t need to sell my Bitcoin in a pinch.
Stay within my bandwidth for volatility so that I wouldn’t panic, cave, and sell during a dip.
These became my tracks, which I could work on a step at a time.
I was working with a small budget for investing, which perfectly matched my small bandwidth for risk and volatility.
Starting within my financial limits meant I also stayed within my volatility bandwidth, and with each step, my tolerance grew.
Instead of standing on one side of a canyon wondering how to jump across, I had tracks to put down, one step at a time, which worked best within my financial limits and volatility bandwidth.
It’s exciting to have a plan that’s finally moving me toward the dreams that started as a nine-year-old with a horse named Marshall and a bank account accruing marbles: to become debt-free and even live on gains from investments.
Investing within my bandwidth is resulting in more than excitement about future goals. It’s created a calm process. Regardless of how long the goals take to accomplish, the experience is less like a roller coaster and more like a fun ride.
I’m not in a hurry to get off anytime soon.
DISCLAIMER:
What I share here is based on my own experiences and opinions about money, finances, and the Bitcoin system. These views are mine alone and don’t represent the beliefs or opinions of my family, household, or anyone around me. I do appreciate their support as I share my personal experience.
Nothing shared here should be taken as financial, investment, or legal advice.
