share this article!

Good Life Financial Advisors of NOVA is led by Josh Strange, who is the company’s founder and president.
getty

Opening an account on a retail trading site like Robinhood or Coinbase has never been easier. As a result, investment markets are more accessible than they have ever been.
High trading costs have traditionally been a huge barrier for young would-be investors, so anything that helps them get started investing sooner is a good thing. The issue is that venues like this can encourage misinformation and speculation.
Consider this: Someone who invested $100,000 in Pfizer shares on January 4, 2021 and sold on June 17, 2021 would have received a lower return than someone who invested the same amount in Dogecoin. Despite the fact that the former is working on a product to help end a worldwide pandemic and the latter is a coin with arguably no functional use that Elon Musk famously referred to as a “hustle” on Saturday Night Live, the former is building a product to help end a global pandemic.
Without such quick and inexpensive market access, none of this would be conceivable. But that’s the reality of today’s market, where so-called meme stocks and digital coins may sometimes outperform well-established corporations with a track record of profitability.
Of course, ignoring the impact of social media on this flurry of activity would be silly. Some amateur investors become billionaires overnight thanks to a single Reddit page. Meanwhile, a slew of TikTok and Instagram celebrities have persuaded their audiences that trading stocks and digital coins is a simple way to make money.
ADDITIONAL INFORMATION FOR YOU
Some of these mindsets have crept into my discussions with inexperienced investors. The following are some of the key takeaways from those discussions:
The vast majority of financial counselors aren’t stock pickers.
When I inquire about someone’s objectives, I occasionally hear things like, “I’d like to quadruple my money in six months.” That is not only unreasonable, but it also misses what financial advisors actually do, which is to put in place a strategy to increase and safeguard a client’s wealth over time while also assisting them in achieving their long-term goals.
Asset and portfolio management are, after all, minor components of a greater wealth management puzzle. While some of my peers have a strong track record of identifying stocks and outperforming established benchmarks, investors should be suspicious of anyone who claims to be able to do it consistently.
In the end, financial advisors assist consumers in building wealth over time, not overnight.
Many people have no idea what they’re buying, let alone how much it costs.
Another thing I frequently hear from clients is, “I want to buy a bunch of Company A,” which is almost always a company that has been in the news for making large gains.
In that case, I always inquire if they are familiar with the company’s operations. They do on occasion, but they do not on a regular basis. Following that, I inquire as to whether they are aware of the company’s multiple (i.e., how cheap or pricey it is), a query that frequently results in a blank expression.
It’s awful enough not knowing what you’re buying. It’s much harder not knowing whether you’re paying a fair price for it. No one would pay $100,000 for a car that costs $40,000. However, I believe that this is similar to what people do when they buy a stock with an unusually high multiple.
Investing and speculation are two different things.
Even if the dangers are obvious, there’s a legitimate expectation that you’ll get your money back when you invest in something, whether it’s a bond, a piece of real estate, or a stock. Speculation, on the other hand, entails the risk of losing everything.
To be clear, there’s usually nothing wrong with speculating with some of your money if you can afford it. But keep in mind that some assets are similar to placing a wager in Las Vegas: you could win big, but there’s also a risk you’ll lose large.
Taxes are something that many investors overlook.
Let’s pretend for a second that everything works out. Someone with a $10,000 Robinhood account sees their wealth grow after purchasing a series of stocks that have increased numerous times. Even better: they were able to sell everything while they were ahead.
Isn’t that fantastic news? Most of the time, as long as they are aware of the tax implications of such transactions. Many of them aren’t. If they didn’t hold those stocks for more than a year, they could be faced with a large tax bill, both because of the gains and because their marginal rate may have risen as a result of them.
While stocks have been volatile in recent months, indexes have essentially recovered from the depths of the Covid-19-related sell-off last spring. Low interest rates, I believe, are part of the reason for this.
At the same time, it would be unwise to overlook other aspects, such as the influence of cheap brokerages and social media on some people. Buying stocks to gain money isn’t as simple as today’s climate makes it appear, and it’s rarely a good alternative for developing a more comprehensive financial plan.
This website does not provide investment, tax, or financial advice. For counsel on your individual circumstance, you should seek the opinion of a licensed professional.
Forbes Finance Council is an invitation-only group of successful accounting, financial planning, and wealth management executives. Do I meet the requirements?/nRead More

share this article!