Short term investing, viral meme stocks and gambling have become part of a big conversation. Experienced investors believe it a sign of an economic cliff, while others call it a movement to take on the wealthy few on Wall Street . Those often not discussed are people who fear investing because of the risk of losing everything, or those who have lost everything and who's appetite for investing has been squashed. This article will discuss this story and examine how having a long term outlook is the answer for most people.
by Christian Scully
Let's begin by noting that if you have no idea what "meme stonk" means, you live in perhaps a more peaceful existence already. Several forces boosted by the Covid-19 pandemic of 2020 brought meme stonks, or trendy, often highly speculative stocks, into the mainstream.
Groups like Reddit's r/WallStreetBets rose to the top of media popularity with their cult-like efforts to bring down the hedge fund giants who dared to place heavy short positions on beloved corporations like GameStop and AMC Theatres. The result was a storybook rise in stock value, experienced and inexperienced FOMO investors alike stacking bets on top of one another in such numbers that one hedge fund, Melvin Capital, lost 53% in January 2021.
These trendy meme stocks, rising to such heights due to a mix of speculation and social media published theories on options contract expiration dates, were bound to come crashing down hard, draining millions from investment accounts of thousands of young investors who hopped on what was marketed to be a rocket ship to the moon.
The vast majority of the diamond handed "hodlers" saw their investments wiped out. Some early investors did manage to ride to the moon, hopping off the ship towards the peak and sending it crashing back down to earth. Stories spread of people that lost their life savings, all for a chance at hitting it big and joining the millionaire club.
The thrill of gambling is fleeting. Gamblers almost always lose in the end, and when they come down from their high, and breathe into their new reality, panic, stress and anxiety are there to greet them. WallStreetBets knows what they are doing, the group exists to share in the experience of placing bets, it says so right in the name. But in the craze of the pandemic, with stimulus money dosed directly into stir-crazy citizens and the hype of life changing earning potential, more than just eager gamblers joined in the excitement.
To many people, all investing is gambling. That makes sense, considering you are putting hard earned money into the hands of others hoping by some miracle the value will rise and your bet will pay off.
But not all investing is equal, and not all investing needs to feed a gambling addiction or cause fear, anxiety or panic. All people who have a job where they trade their time for money should be investors. Period. If at least some of your earned money isn't going to make its own money, you are truly missing a large piece of the personal financial puzzle.
The solution to fear, stress and anxiety when it comes to investing is simple: take the long term view. The medication prescribed to young FOMO investors who lost their bets on meme stocks in the last year is simple: take the long term view.
By planning to invest a portion of your earnings, starting at a young age, with the intention to hold those investments for 20, 30 or 40 years, you eliminate the need to react to daily, monthly or even annual fluctuations in the market. If the market goes down one month or even one year, you can rest easy knowing that history is on your side and you have a logical plan in place.
You can scroll through the annual results of the S&P 500 index since 1928 here. Yes, you will see some down years and even a few horrible years as recent as 2008, the Great Recession. But the people that didn't hold a long term view in 2008 and sold their assets in a panic missed out on some of the greatest market gains in their careers during the years since.
Yes, even long term views have an ending. Investments are meant to be risk-adjusted as investors age towards retirement. But for at least thirty years, an average blue collar worker could enjoy a century long average of 10% returns with their money invested in a low cost index fund or ETF, and realistically retire a millionaire. It is simple math, with more emphasis placed on the length of time invested.
You work hard for your income, make it work hard for you. Consider having a long term view on all your investments and endeavors, stick to your game plan, make adjustments as you go and enjoy a fruitful, more stress-free existence. Managed risks are good risks, it means the risks are not complete leaps of faith. Managed risks are well thought out, logical and can fit into a well balanced financial plan.
With a long term view, working and middle class investors can rest easy knowing that they are not missing out on growing their savings into plentiful retirement funds, and can confidently withstand market losses with optimism logically rooted in a century of history. If opportunities arise along the way for riskier investments, keeping the long term view will help guide those decisions.
FYI: Smart, risk-managed investments don't need to be accompanied by the number for a gambling addiction hotline.
As always, seek the counsel of a certified financial advisor to discuss your financial plan and make the best, most informed decisions possible. The author makes no representation to be a financial advisor and is sharing personal opinions and experience.
Real Estate + Money
Thoughts, ideas, lessons-learned, inspiration, how-tos and more from a journey in small business, to owning and investing in real estate, helping borrowers navigate the mortgage process as a licensed loan originator, in an ongoing pursuit to fund the life and retirement that is chosen, not accepted.