A reader sent me this question:

“I’m looking at a high quality, AAA-rated German government bond. That’s supposed to be a super safe investment, right?

But in 2022 the price dropped by 18%. How is that even possible?”

Let’s put on our detective hats and figure it out

There are 2 reasons why a bond price can fall.

The first is a problem with the credit quality.

If you own a German government bond, the German government owes you money.

If investors think the government won’t be able to pay them back…

…if they suspect that Chancellor Scholz spent the federal budget on schnapps and sauerkraut…

the bond price could fall.

Did that happen in 2022?

No.

I have no data on schnapps consumption…

…but plenty of cash was left over.

Germany’s AAA credit rating didn’t slip.

So what’s the other reason bond prices can fall?

Well, it’s got to do with interest rates.

At any given point in time…

for any given bond rating and term…

there is a certain % of interest investors expect to be paid.

In January 2022, German government bonds paid around 0%.

But then interest rates started rising.

The European Central Bank pushed rates up to fight inflation.

Investors now expected AAA-rated bonds to pay more than 0% per year.

And the old bonds – paying 0% pe year – were no longer attractive.

Their price fell 

It’s kind of like when you buy the newest iPhone.

At first the resale value is great.

But if a new iPhone comes out…

…yours is no longer sexy…

and the price falls. 

This is why it’s important to get educated before you start investing.

 I launched the Index Masterclass back in 2021…

…and in our training course I covered this risk.

I said that if you buy bonds that pay 0%…

you’re getting nothing – but taking lots of risk.

And as you can see, that risk was very real.

 Now today the situation is very different.

There is still risk in the bond market…

but there are also opportunities…

if you know where to look.

So it’s time to get educated! 

I grew up in the Soviet Union.

I shared one small bedroom with my parents and my brother.

All my clothes had patches on them.

Getting to eat a banana or orange was a special occasion.

(by the way, that’s me waving at you in the picture)

I was a happy child – but I wanted more.

A Mars bar. . .

A personal computer. . .

My first trip abroad. . .

There was always a dream out of reach.

Today, my kids are really comfortable

Tasty food. . . toys. . . cool trips and experiences. . .

they get it at all, and I do worry sometimes how that will shape their lives.

I think it’s a problem for many of us today.

In Europe, it’s easy to get used to a comfortable existence.

Maybe you’ve got a stable job…

The government gives you unemployment protections and free health care. . .

you can keep working 9 to 5 until retirement and then you’ll get a small but decent pension. . .

things are fine.

Just fine.

Except you keep wondering – is this it?

Isn’t there more to life?

And of course there is. . .

there is so much of the world to see. . .

so many cool experiences to have and people to meet. . .

but unless you’re a 20-year-old with no responsibilities who can go backpacking around the world. . .

most of those experiences require wealth.

And building wealth is hard when you’re too comfortable.

If you want more freedom in your life. . .

then it’s time to start taking risks.

You need to risk your free time to build up valuable skills.

Risk your career to go for higher-paying jobs or positions that pay based on commission.

And risk your money – whether through investing or starting your own business. . .

The question is – how much do you want it?

Is your comfortable life good enough?

Or do you want something more?

There’s no right answer to that question.

Everyone has to decide for themselves.

I only know one thing. The formula works like this:

Action today. Freedom tomorrow. 

By the way,  I’ve never regretted a single professional risk that I’ve taken.

As long as you have a safety cushion in your bank account. . .

as long as failure will not devastate your family’s life. . .

then taking career risks or business risks is a no-brainer.

If you succeed, your life goes to a different level.

If you fail – well, you learn a lot for next time.

What do you think?

At age thirty, I was broke – and my wife was pregnant.

I had started my career on Wall Street, making 200 thousand dollars per year.

But in my twenties I spent freely and enjoyed life.

And after leaving Wall Street my savings evaporated.

On the day when I saw my son’s first ultrasound, my bank account balance was just a few hundred euros.

So I made a drastic change.

I pushed hard to find high-paying work…

…and I downgraded our expenses at the same time.

We lived in a tiny apartment with old furniture.

We drove a 15 year old car.

We almost never ate out.

Over the next few years, I saved up to half of my income.

And that put us on the road to financial stability.

Soon our savings reached six figures again.

That allowed me to start a successful business.

And today we’re in a better spot financially than ever before.

If you’re struggling financially. . .

if you’re living from paycheck to paycheck or even in debt…

it can feel hopeless.

But your financial situation can actually change really fast.

The question is – are you ready to take massive action?

Small changes won’t move the needle.

To get fast results, you will need to change your life in a big way.

Search proactively for a higher paying job (or a higher paying profession if needed).

And make dramatic cuts in three areas of your budget:
– housing
– transport
– food

Move to a smaller, cheaper apartment in a less popular part of town.

Sell your car and take public transport.

Uninstall your food delivery app and eat at home.

Do any of these and it will help.

Do ALL of these and your life will change FAST.

So if you’re feeling down about where you are financially. . .

Take a moment to decide how important this is to you.

And if you want massive change in your finances. . .

then it’s time to take massive action.

Because only action today can give you freedom tomorrow.

Barça is a great football club.

Let’s say you have a brilliant idea. You think they’re going to win Spain’s La Liga next year.

So you’re going to make a sports bet on Barça winning – and become a millionaire!

Where’s the problem with this brilliant plan?

Well, Barça won La Liga 5 out of the past 10 years.

Everyone knows they have a great shot at winning again.

No bookie will give you great odds.

You won’t make big money betting on Barça.

That’s obvious, right?

But people miss this point when looking at stocks. 

They think – oh, wow, Microsoft or Apple or Netflix is a great company.

I’m going to buy their stock and make a lot of money!

But that’s just betting on the winners.

Everyone knows these are great companies.

So their stocks are really expensive. 

And there’s no easy opportunity for big profit.

To be a great stock picker, it’s not enough to pick great companies.

You have to outsmart the bookies – in this case, other investors.

You have to find companies which have been mispriced by the market.

And that’s extremely difficult.

In fact, even professional investors find it hard. . .

. . . because the market is mostly professional investors competing against each other.

So what’s the solution?

Don’t gamble.

Don’t play the game of picking individual stocks.

Just buy a good index fund or ETF. . .

and invest in the market as a whole.

Decades of research have demonstrated – index investing is likely to get you better results. . .

. . . with far less effort and stress!


P.S. Just in case it’s not clear, I don’t support gambling or sports betting. Invest your money instead!

Whenever prices go up, you see people raving about crypto…

Saying BTC will “go to the moon”…

and that you NEED to get in right this second…

and look, I’m not into crypto personally.

I’m more about stocks and ETFs – investing in real companies which make money for shareholders.

But I’m not saying “don’t buy crypto”.

That’s your decision.

Plenty of people have made money with crypto.

For sure, Bitcoin has had a crazy run. And maybe it will continue.

If you decide to play, I wish you good luck.

What I do want to say is this.

When everyone’s this excited…

Watch out for scams

Crypto is full of these.

A couple of years ago you had the FTX debacle – a major crypto exchange which turned out to be a scam.

Today I’m hearing lots of stories about people who clicked the wrong link online and found their crypto wallets drained by malicious code.

In another common trend, scammers are impersonating celebrities and messaging people online with fake “crypto investments”.

It’s not just big players like Elon Musk who are getting impersonated.

Scammers have been copying the social media accounts of small influencers too – myself included.

My followers report getting messages where “Tom Crosshill” tells them to buy crypto. . .

. . . which is of course bullshit.

I would never do that.

And most people who follow me would realize that.

But when everyone is hyped up, their guard goes down

You want to get in on the profit. . .

. . . so you miss the red flags. . .

. . . and fall for scams which should be obvious.

So if you’re going to swim in crypto waters, keep in mind that there’s sharks out there.

Lots of them.

And stay safe

Do your own research…

Find a reliable financial provider…

. . . or take the time to learn all about hardware wallets and crypto security. . .

And even then – don’t take more risk than you can afford.

I hope this helps someone.

My kids are getting really curious about money…

So recently, I made a deal with my 7-year-old son.

If he read this big Dr. Seuss book by himself, he would get 5 euros.

Now, I’m not saying this is a great parenting strategy (probably not). . .

But here’s what I noticed.

My son has no frame of reference for monetary value.

He was excited he would get “five cents” until I explained that “five euros” is something different.

He has no idea what that money is actually worth

It reminds me of the famous quote from Arrested Development, where wealthy Lucille said:

“I mean, it’s one banana, Michael. What could it cost? 10 dollars?”

If you’re a little kid. . .

or if you’re wealthy like Lucille. . .

or if you’re simply doing well enough that you don’t need to look at prices in the supermarket. . .

You get disconnected from what money is actually worth today.

I’ve been there.

There was a time in my life when I never checked prices at the grocery store.

I thought – ”I’ve moved beyond that.”

But soon I realized I was overspending. . . by a lot.

Which eroded the savings which allowed me to not care in the first place.

So here’s a great exercise I do from time to time…

Get a notebook and for the next week write down every single little expense.

At the end of the week, go through the list.

See where your money is going.

See how much things actually cost today.

You might be surprised at what you learn.

And hopefully this will be a great “kick in the pants” for your savings discipline!

Just hypothetically….

Which option would you prefer?

(A) I give you 100 euros and then I take 40 euros away

or

(B) I don’t give you anything

Obviously A is better, right?

Otherwise you’re just saying: “I don’t want money!”

But people make choice B all the time

I hear lots of people say this:

“Investing taxes are so high it’s not even worth bothering!”

I hear this from people in Ireland, Denmark, the Netherlands, and many other places. . .

even countries where taxes aren’t all that high. . .

And I get it – no one wants to pay 20, 30 or 40 percent tax on their ETF profits – it’s frustrating.

But paying 40% tax on 1000 euros is a LOT better than paying 0% tax on 0 euros.

And investing is virtually always better than not investing, no matter where in Europe you live.

It’s especially dangerous to compare your country with others.

Okay, sure, taxes may be lower in other European countries.

But here’s a couple of things to keep in mind.

First, comparison is the thief of joy.

Unless you’re planning to move, comparing with other countries is just a recipe for depression.

And second, taxes don’t exist in a vacuum.

I’ve been researching taxes in 30+ countries across Europe – and in most cases the countries with the lowest taxes have plenty of other drawbacks…

While many of the countries with higher taxes are the countries where people want to live – because life is very nice there.

So don’t sabotage your own wealth.

Don’t pick option B and stay broke just because you’re frustrated about taxes.

Take action – save and invest – and you’ll be far better off in the future than anyone who’s stuck in “comparison mindset”.

Even if you have to pay some taxes along the way!

I’m turning 40 pretty soon.

So a few months ago I decided to take advantage of the great medical services (I was living in Barcelona) and get a full body checkup.

I spent an entire day in the hospital getting poked and prodded and examined from every angle. . .

And as I lay on the table waiting for another test. . .

I thought how great it is that we have so many skilled, hardworking doctors looking out for our best interests today.

And how horrible it would be if medicine worked like investing…

You go to the hospital. . .

The doctor asks you a few questions. . .

and then recommends the most expensive procedures he can imagine.

A kidney transplant…

Some plastic surgery…

With a bit of gene therapy on top, just to charge an extra €10’000.

That’d be horrible, right?

Fortunately medicine doesn’t work like that (at least here in Europe).

But investing does.

If you want to have a financial checkup. . .

if you go to your bank to ask for help. . .

And by the way in most of Europe these are the only people with a license to give you advice. . .

Then the advice you get will be whatever makes your bank the most money.

Invest in expensive funds.

Buy a lot of them.

And keep trading to generate commissions.

That’s the bad news. But here’s the good news.

With medicine, learning how to “do it yourself” is not practical.

It would take years of full time training.

But with investing, we can all take charge of our own finances.

All it takes is a few weeks of effort to learn the basics.

So get going today. Start taking action.

Because you know how it goes:

Action today, freedom tomorrow.

 

P.S. 
My next free webinar for European investors is coming up soon. It’s a great starting point for taking control of your financial future.

You can register here: indexmasterclass.com/

A while ago I was out for a walk in Barcelona, enjoying the sights, when my phone rang.

So I picked up.

A serious, older man starts speaking: “Hello, I’m inspector Martinson from the Latvian criminal police. We have to discuss an urgent matter.”

My heart rate shoots through the roof.

I start sweating…

I knew I hadn’t done anything wrong. . . but I still got stressed.

“What could this be about?” I thought to myself.

But then I remembered reading lots of articles about scammers calling people and pretending to be the police.

So I said: “Well, if you need anything from me, please use the official government portal to send me a message.”

Then. . .

. . .the guy cursed me and hung up.

So obviously it was a scammer.

There are two insights this experience gave me.

First, in most areas of life, the famous saying is really true:

Urgent things are never important.

Important things are never urgent.

When someone calls or e-mails you and pushes you to take action FAST, giving you the impression things are urgent and important and dangerous. . .

that’s almost never the case.

Especially when the government is involved, nothing happens quickly. There’s always time to think.

Those who push urgency are likely to be scammers.

And here’s the other point. . .

I got stressed out when I got the call. . .

but I knew that I had done nothing wrong – and that really helped.

Life is a lot less stressful when you do things right.

Don’t break the law. . . don’t cheat people. . . don’t lie. . . and you’ll have much less to worry about.

I see this happen with investing taxes a lot.

People start investing without taking care of taxes.

And then there’s always the worry in the back of your head. . .

what if the government finds out. . .

what if I get into trouble?

And it’s really not worth it.

It’s best to get educated and do things right so that, if one day you get a call from the tax authority – whether it’s a scam or for real – you will have nothing to fear.

Lex Fridman did a great podcast with Bill Ackman (a famous activist investor).

Ackman does the exact opposite of what I preach.

I’m all about passive investing while he only does active investing.

But I loved the conversation.

Because I think it shows you what successful active investing really takes.

Bill Ackman’s company only invests in a few select stocks at a time.

They research these companies exhaustively. . .

model their financials. . .

make sure the stock price is attractive. . .

and then, after buying, Bill doesn’t just sit there and wait to make money.

No. He gets on the board and influences management.

In many cases, he gets the company to change course by 90 degrees.

This kind of active investing I can believe!

It’s really entrepreneurship as much as investing.

So if you want to go to college or business school …

Learn finance…

Get years of real business experience …

and then do active investing where you don’t just analyze companies for months – but you go fight management to get them to change course. . .

That’s great.

Done like that, I’m sure active investing can work. Bill Ackman is a clear example of that.

But if you don’t want to do the work, you won’t get the reward.

Most of us don’t want to devote our lives to activist investing.

We want to pursue our passions or prioritize our families while investing on the side.

And in that case, there’s no better investment than an index fund or ETF.

In fact, despite being a famous activist investor, Bill Ackman gave a shoutout to index funds in the podcast.

Because with these funds you can get really good results with barely any effort.

The active vs passive debate gets too heated sometimes.

The truth is, both approaches can work great if done right.

Either type of investing is much better than not investing.

The important thing is to pick your path and start taking action.

Because action today means freedom tomorrow.

Watch the full episode here:
https://lnkd.in/dEeGQhDp