Why does Hectagon exist?
Discussion of Opportunity and Problem of investment for retail/individual investors
Last updated
Discussion of Opportunity and Problem of investment for retail/individual investors
Last updated
Building wealth is something that everyone needs, and it is well known that wealth cannot be built through savings. You need to save for rainy days but the money you save will just eventually lose all its value due to inflation.
To grow your wealth, you need to put what money you have left after saving to work through investing. If we look at returns on investment in different markets.
The stock market is arguably the easiest market to get into for any individual investor. Across the period of 1990 to 2022, the market can give investors a 10% ROI quite consistently, and over this period, investors can get a CAGR (Compound Annual Growth Rate) of 7.89%. That’s pretty good. You can find the raw data here.
However, if we look at the performance of Venture Capital (VC) across a similar period, we can see that VC can consistently give investors more than 20% ROI per year, which is 3 times more than what the stock market can provide. You can find the raw data here.
Moreover, if we look at the data from CoinMarketCap, taking the price of all tokens tracked by the site on the first day they are listed and comparing it with the new price every 6 months. Investors can generally expect 15-20x returns over the period of 7 years for a simple investment strategy of going to CoinMarketCap everyday and just buying every new token that gets listed equally.
This seems like the opportunity to invest and making crazy returns is everywhere, but of course, nothing is as simple as it seems.
Venture Capital isn’t going to take money from just anyone. To start investing with VC, you need to be an accredited investor (a.k.a., an already wealthy individual). Without investing with VC, retail investor can also say goodbye to any opportunity to invest in seed round of companies where the great returns is generated.
Between juggling a full-time job and family responsibilities, it is impossible for an individual investor to stick to a consistent investment strategy, even if it is just as simple as going on CoinMarketCap every day to see the new listed tokens and buying them. Without being able to stick to a consistent strategy, investors usually lose out on most of their gains.
Take a look at the chart below:
Between 1990 to 2022, the CAGR of the DOW Jones is 7.89%, that is 389 months. But if investor just misses out on the 6 best months, the CAGR drops to 6.17%; If investor misses out on the 12 best months, the CAGR drops to 4.78%.
That might not sound like a lot, but the thing is, this rate is compounded. So just this small drop in overall CAGR will make the investor lose out on 40.31% and 60.81% of their gain respectively. That is a steep price to pay for just missing out on 3% of the time.
At the end of the day, investing isn’t a way to get rich quick; it's a way to put the extra capital you have left after living costs and savings to work to generate more capital consistently over a long period of time, regardless of how much you have to start with.
The beauty of investing is that once you put that capital to work, it will just keep working and generating more capital for you without you needing to pay much attention to it.
In the next chapter, Hectagon will propose a solution that allows individual investors to consistently benefit from seed investments into Web3 projects.
Why Seed investment and why Web3? That’s easy:
Seed investment is the round before the public token round where investors are guaranteed to always make a better return than the public.
Web3 because crypto has given the best returns in the last decade, while the cycle of development of Web3 is still at an early stage, the majority of future growth is still to come.
