What Monopoly Teaches us

What Monopoly Teaches us

Five Lessons in Finance and Investing we Can Learn from Playing Monopoly

One of the best stay-at-home activity we can do is play board games with the family. There's plenty of game options lying around, but no other game reveals how competitive family members can be than the classic Monopoly. A game of strategy and wits, it challenges the players to manage money wisely. It teaches it's players how to invest in property and build a secure financial empire.

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After revisiting the game as an adult, you might quickly realize that the game offers real-life financial wisdom. There are definitely lessons that one can also use in the real world of finance and investing.

Here are investment principles that we can take from the game. Not only will it increase your chances of winning the game, but also help you better understand finance.

·   Always Have Cash On Hand

To win in the game, you must be the last player left. That means you have to be the last one with money. If you bought all the properties you landed on without any goal or strategy, you will run out of cash. When it's time for you to pay your financial obligations, you might not have enough to cover the cost. Having no cash in the game is a quick way to go bankrupt.

In the real-world matters of finance, having cash on hand puts you to an advantage. When market crashes and recessions happen, many are left with no choice but to mortgage properties or sell their assets for much less than what they paid for them. But those who had cash to spare had the opportunity to buy assets like stock, bonds, and real estate for very cheap.

·   Patience is a virtue

Patience is key to winning the game. Establish a gameplan and know when to buy property or utilities and when to take a pass. The game and real life are very much the same in terms of outcome. You can't just hope that the market will favour you, you have to have the discipline and strategy to make a calculated move. Play the long game.

·   Cash Flow is King

You may not be aware of this, but the most valuable properties on the board game are actually the four railroads. It has the best cash flow when you own all four of them. You are at a position to claim higher rent and a 25% return. Know that assets increase in value based on the cash flows they produce. A simple savings account is more valuable when it earns more cash.

·   Buy Cheap, Build from there

Owning a hotel in Monopoly is one sure-fire way to win. You get to charge the highest rent when a family member lands on to your square. The land that you bought need not be an expensive property at the start. Most players set their eyes on the most expensive properties thinking that it will gain the highest payouts. But these properties are also expensive to maintain. Not only look at the cash flow but consider the cost too. The way to win is not by owning the most expensive properties but making the most money.

In the Investment World, the way to win is buying low and selling high. Or like the hotel, buy cheap, build, build, build.

·   Don't Put All Your Eggs in One Basket

Winners of Monopoly often have found a balance between owning a few properties and buying everything one lands on. Spreading out properties throughout the board is a working strategy.

In investing, betting all that you've got on one or two stocks is a dangerous exposure to a potential wipeout. Diversify Intelligently!

And there you go! These money lessons, of course, should not replace a proper study on investment and finance. But the lessons learned here will hopefully teach all of us how important it is to strategize our money management. In this game of life, may you come out the winner!

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