The stock market can be a wild ride, and super confusing. Just for an example, what are we supposed to learn from the recent case involving GameStop?
The chain of video game stores has been struggling for a long time. But in January 2021, the company's stock price skyrocketed up by 1,500%. Then it plunged back down to earth.
Some investors made a fortune. Others lost a fortune. And it all happened thanks to a weird mix of Reddit stock traders, hedge funds, short sellers and thousands of individual investors â€" people like you.
What should we take away from this? We asked Robin Hartill, a certified financial planner and a senior writer at The Penny Hoarder. Here's what she says:
1. Don't Invest Based on Emotion or FOMO
The GameStop stock mania was partially fueled by investors' FOMO â€" fear of missing out. Thousands of investors didn't want to miss out on the possibility of huge profits, and a lot of those same people ended up losing money in the end.
'Ask anyone who's built wealth and wasn't born rich how they did it. They probably won't tell you a story about taking short positions or buying $2 stocks,' Hartill says. 'No matter how they feel about Wall Street, they'd no doubt tell you not to make investing decisions based on emotion.'
2. Start Early â€" Buy and Hold
So how did those investors build wealth?
'Most likely, they'll tell you that they started investing early,' Hartill says. 'They'll stress consistency and long-term investing over day trading.'
In other words, don't try to 'time the market.' Just start investing and keep investing over the long term. That's how you build wealth.
Over the long term, investing in the stock market will get you an average annual return of 7%, adjusted for inflation, according to authorities such as the U.S. Securities & Exchange Commission.
Don't know where to start? With an app called Stash, you can get started with as little as $1.* You can invest in pieces of well-known companies, such as Amazon, Google, Apple and more. You're able to invest in fractions of shares, which means you can invest in funds you wouldn't normally be able to afford.
3. Learn to Do Your Own Research on Picking Stocks
Hartill recommends budgeting a certain amount of money to invest each month, no matter what.
We like Stash because it lets you choose from hundreds of stocks and funds to build your own investment portfolio. But it makes it simple by breaking them down into categories based on your personal goals.
Want to invest conservatively right now? Totally get it! Want to dip in with moderate or aggressive risk? Do what you feel.
It takes two minutes to sign up, and it's totally secure. Subscription plans start at $1 a month.** Plus, when you use the link above, Stash will give you a $5 sign-up bonus once you deposit $5 into your account.
Mike Brassfield ([email protected]) is a senior writer at The Penny Hoarder. He's a long-term investor who's never owned any GameStop stock.
*For Securities priced over $1,000, purchase of fractional shares starts at $0.05.
**You'll also bear the standard fees and expenses reflected in the pricing of the ETFs in your account, plus fees for various ancillary services charged by Stash and the custodian.
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.
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