A guest post by Philip Orbanes, author of Monopoly, Money, and You:

If you’re like me, the first time you joined in a Monopoly game was also the first time you handled lots and lots of money bills–even if they weren’t real.

Many think these colorful, boldly-denominated bills are trivial, but they are priceless.  Why?  Grasp the lessons of making (and losing) money while playing Monopoly and you’ll sharpened your ability to turn a profit in real life (and avoid some dumb investing mistakes).

My new book, Monopoly Money, and You, is the product of observing the best Monopoly players in the world for over thirty years and learning how they profit from the game’s secrets of success, both on and off the board.

Let’s explore one of its many topics: cash conversion.

You’re not going to grow your nest egg by playing it safe and staying in cash. You need to accept risk (typically by buying stocks or mutual funds). For many of us, the idea of evaluating an investment is daunting. We know from experience that something can go wrong at any time. But over the long haul, wise risk-taking wins out.

Initially, you have only 32 conversion opportunities –28 colored properties, 4 railroads and 2 utilities. Each will earn you a paltry rent when landed upon.  But acquire an entire group, and your rent doubles (even more on the rails and utilities).  Yet, to get the best returns, you must further convert cash by developing a color group with houses (perhaps hotels).

So which group should you acquire?  Circumstances permitting, every color group in Monopoly (except the lowly Browns) can win the game for you.  For example, the 2009 World Champion won with the Light Blues  ($550-$600 with hotels) because the more expensive groups hadn’t been built-up against him. Timing.  Yes, hotels on the Dark Blues (Boardwalk and Park Place) earn the most –$1500 and $2000 respectively–but this group costs far more to develop than the Light Blues (or Purples or Oranges), and it doesn’t get landed on as much. (Fewer payoffs).

How many houses to build?  Take note:  there is a huge jump in rent between two houses on any property versus three. In the case of Oriental, the rent pops 300% (from $90 to $270).  If you can afford to build three houses, it is foolish to stay at two.

While diversification is crucial in the real world, placing more money in advancing investments will likely increase your return. The trend is your friend.  Monopoly teaches you to invest to maximize your return while avoiding mediocrity. And it conditions you to maintain just enough free cash for “expected” setbacks, just as in real life.

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