Bill Keane is the founder and chief executive officer of Keen Wealth Advisor And Keen on Retirement’s best-selling author.
If you’ve been watching the news lately, you’ve probably heard about GameStop’s stock price. One of the so-called “meme stocks” (popularity is driven by online enthusiasm in places like Reddit), GameStop stocks show a sharp rise and fall, then rise and fall again. I repeated it. Netflix is making a movie about the whole ordeal.
If you haven’t heard of GameStop’s blunder, you’ve probably heard of Bitcoin. Bitcoin is a cryptocurrency whose value has skyrocketed in recent years. As of September 10, 1 Bitcoin is worth about $ 45,000. Some companies are now accepting it as a payment method.
At first glance, GameStop and Bitcoin share one similarity in my mind. That is the attraction of “gambling scams”. Last year I received more than a few calls from people interested in investing in Bitcoin and meme stocks. Several clients have asked me about Dogecoin (thanks to Elon Musk).
Remind the client of the same differences pointed out here. There is a difference between investment and speculation. When it comes to GameStop, Bitcoin, or Dogecoin, you’re guessing, and do you know what another word to guess? gambling.
Guessing is dangerous
Let’s address some points right away. First of all, I’m not against Bitcoin. I recognize that cryptocurrencies and blockchains will have an impact on the future of finances. But for investment, at some point I might consider Bitcoin as a relatively small percentage of someone’s portfolio.
Second, you may be asking, “Wait, are you investing like gambling?” On the other hand, I would say: Yes, it may be. For example, if you put all your money in one security instead of a diverse portfolio, it’s like gambling. If something happens with that security (it’s beyond your control), you can be crushed. That’s what happened at Enron, and many were devastated when Enron fell, much like “bet everything black” at a roulette table.
Part of what puts the guess at risk is the unpredictability of the results. Yes, certainly nothing is guaranteed in a diverse equity portfolio. The Covid-19 pandemic (and other Earth-destroying events) has shown investors that the bottom can fall at any time.
However, as investors have seen this year, diversified portfolios can rebound just as quickly and tend to generate positive returns over the long term. For example, according to Goldman Sachs data quoted in June 2021, from 2010 to 2020, the S & P 500 provided an average annual return of 13.6%. Business insider paper. Let’s go back further. The same article states that Berkshire Hathaway data showed that the combined annual profit of the S & P 500 from 1965 to 2020 was 10.2%. To quote a phrase commonly used in my industry, “past performance does not guarantee future results.” But history is useful.
When it comes to Bitcoin and meme stocks, investors simply cannot take advantage of their history.
Successful investor habits
My clients, who have successfully invested and saved money for the future, have some common behaviors. First, they carry out their plans. Don’t panic when the market goes down, and don’t get too excited when the market goes up. They are stable. Do they adjust their plans as they go? Absolutely — but they always stick to the plan.
They do not chase the latest “gambling scams” opportunities. They know where they are, where they want to go, and the paths that are most likely to lead them there. All detours along the way are just distractions that can keep them away from the goal of financial independence.
But that doesn’t mean I don’t get those calls from time to time. After all, we are all human beings, so we are wired to enjoy and avoid pain. Saving money and having financial discipline for decades can be painful for some people. Therefore, they are at least a little intrigued when they find an opportunity to skip ahead and avoid some of that pain.
A financial adviser like me is here to act as a guardrail when one of these “glossy objects” pops up and instantly catches your attention. Here’s a reminder that the most likely path to financial independence isn’t chasing meme stocks or “all-in” to Bitcoin.
Even if one of these gambling rewards, let’s hear this. What do you do next? If you lack the right kind of financial discipline, you can blow everything away anyway. After all, this is gambling, so remember the phrase “house always wins.”
I’m not telling you to avoid Bitcoin or GameStop inventory.What I am advocating schedule.. Without it, there is no strategy. You are stepping into the casino with money, and you could go out empty-handed (probably very expensive).
Just as you would when gambling, be careful when guessing. If you rely on those “prize money” to retire you, it’s a dangerous path to take. It’s like quitting your job and hoping your blackjack winnings are enough to pay your bills. Who wants such stress?
Is it possible that the value of Dogecoin goes to the moon? It’s possible, but unlikely — and an investor who turned from Redditors to an investor may make millions of dollars from GameStop’s stock. Bitcoin may become the currency of the future.
But consider other possibilities: what if those big gambling fails?
The information provided here is not investment, tax, or financial advice. You should consult a qualified professional for advice on specific situations.
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