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The last couple of weeks has been so eerie in the investment world. As a Buy-and-Hold (B&H) long term investor I couldn’t make sense of Gamestop stocks skyrocketing overnight. Another great reason why I rather watch my index fund $SPY grow at a slow pace then gambling my hard earned money.
I understand Cryptocurrency has become a popular market with a whole new generation since 2009. Wherever there’s a new crowd there’s usually new hypes. This somewhat can explain why crypto grew exponentially over the course. I’m sure there are other factors beside its market popularity.
Table of Contents
WHAT ABOUT GAMESTOP STOCKS
Without going to the fundamentals, GameStop physical seller used to be my monthly store stop in my gaming years. When cloud-based software came along my visit to the store was less frequent because from my console, I would select the game I want, purchase it, download it and start playing in no time. I assume that was the case for many like-minded gamers from my generation. That’s when the business started declining just like its sister-business Blockbuster. The only difference is Blockbuster is no longer.
But seeing Gamestop stocks valued $13 in December then jumped to $347 a month later definitely cannot be a healthy growth stock. Couple days later it dropped 90% to $49. There’s no logical reason that can explain such disparity. Besides a group of small investors, many from Reddit, and short-selling hedge funds getting together to trigger market volatility.
Following this fiasco, according to CNBC Robinhood alone had 600,000 people downloading the app and tremendous new accounts. This has to be from Fear Of Missing Out (FOMO) in my opinion. I’m sure amateur investors jumped in for the sole purpose to get some of the hot $GME stock in hope to profit but that wasn’t the case.
WHY SHOULD LONG TERM INVESTORS NOT WORRY
FOMO IS NOT AN OPTION
It is possible to lose lots of money as a long term investor. However, you will never be in a position to lose 300% – 400% when it comes to investing for your future. Looking at the S&P 500 from 2000 to 2019, the average market return is 7%, respectively. Short term opportunity stocks have nothing to do with investing. If you stick to a strategy, your portfolio in the long term will make you more money historically speaking.
THE BEAUTY OF COMPOUND INTEREST
Millions of amateur traders collectively lost millions in just a short period due to their greed and get-rich-quick attitude.
If the time horizon is on your side – buying stocks that return part of their profit to the investor, dividend, is the way to go. Over time, it will generate greater profit if you choose to reinvest your profit using the dividend reinvestment plan (DRIP) that most brokerages offer nowadays.
Let’s take a look on how compound interest work using this DRIP calculator – As an example, If you had invested $1000 in Apple Stock in January 2001, twenty years later that stock would’ve valued $570,795 (+37.32%)
TAX ADVANTAGE
All trading income is either taxed as short term or long term gains. A long term capital gain is considered holding a stock for at least 366 days. All security profit will be taxed up to 20%.
For short term capital gains, your tax rates on most assets held for less than a year will be regarded as ordinary income with tax brackets up to 37%. We should also account for some factors that can be used to offset your tax bracket if you carry losses.
SLOW GROWTH IS BETTER THAN NO GROWTH
As I mentioned above, it’s impossible to lose it all when your portfolio includes securities like exchange-traded funds (ETFs) and index mutual funds (IMFs), unless all financial sectors go bankrupt at the same time.
There are plenty of ETFs and MF stocks we can pick from, but let’s take $SPY (SPDR S&P 500 ETF Trust) for example, one of the most popular ETFs amongst long term holders. During the same week, short-squeeze stocks like $GME and $AMC were trading like crazy, upsetting amateur traders, while the $SPY was up 2.76%. To achieve the same results as GameStop, nearly all of the tracked 500 companies would have to fail.
FINAL THOUGHTS – DOES IT REALLY PAY TO GAMBLE?
Certainly anyone can be a lottery winner only if luck is on your side. But what’s the odd of it happening. As per Forbes, The probability of winning the big prize is 1 in 292,201,338. Now, imagine gambling your hard earned money on short-sales stocks hoping to hit the jackpot only to lose it all in a very short period of time – Sorry to say, that’s not investing.
Don’t wait until you get to the point you need a reality check to reduce stress and start managing your debt for you to realize it was a horrible move. Making mistakes and taking some level of risk is human, this is how we grow.
I’m not a CPA, I’m in no position to tell you what to invest on, nonetheless, historically speaking I’ve never seen a long term investor regretting putting in so many years.
Be careful with your money, and don’t invest more than you’re willing to lose. Stay invested no matter the course.
**Valuable Resources I Use Daily:
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Gio founded TheGrowthFocusedGuy in January 2020 because he was fed up with debt.
His mission is to document his journey to Financial Independence in order to motivate and inspire others to get out of debt and begin building generational wealth.
