- As stonk memes disappear, amateur investors are asking: what’s next?
- I have a hot tip for you: you are not really that smart. You cannot beat the market.
- You must have low rate index funds. That’s how you impose it on men: paying low fees.
- This is an opinion column. The thoughts expressed are those of the author.
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One problem with bull markets is that amateur investors can convince themselves that they are good at something.
Suppose you started “investing” – but actually speculating – last spring. Maybe you were working from home, bored and not going to restaurants or on vacation, but you still earned your salary and didn’t know what to do with your time.
So, after a few weeks of playing with your Nintendo Switch, you opened an account with Robinhood.
You probably did well, because the market has done well. Stocks have almost doubled since the pandemic’s fall last March. Bitcoin is also on the rise. There are always ways to lose money, but on average, even if you shoot darts at a dartboard to choose actions, they have probably increased – a lot. Therefore, you can feel very proud of yourself, even if the performance of your stock selection is average, or slightly below average. Even below average, it has been very good in recent months.
And now, in the past few weeks, you have entered the meme market. Some millennials from the old generation like you have created theories about why companies miss you – GameStop, AMC, Tootsie Roll, whatever it is – are underestimated. So they bought it. You bought. And maybe you made money buying GameStop for $ 30 and selling by the hundreds. Or maybe, like Barstool Sports founder Dave Portnoy, you took a shower. In both cases, now that the meme frenzy is dying, you may be asking: what now? What’s the next hot thing?
Well, I have just one hot stock tip for you: the next big thing is low-cost index funds.
Now, to be clear, I am not a financial advisor and this is not a bond offering, just common sense tips on how an adult can manage an investment account.
What’s so good about low-cost index funds? Over time, as the economy grows and corporate profits increase, they tend to increase as well. On average, they produce a good and organized return, surpassing most professional financial managers. And you don’t even have to read any Reddit pictures to find out when to buy and sell them!
In addition, an advanced tip: as far as possible, buy them in accounts with tax advantages. Fund your 401 (k) as much as you can after paying your expenses and funding an emergency savings account. If you do not have access to a 401 (k), fund an IRA – or, if you are in business on your own, a SEP IRA, which allows for more contributions.
And I want to be clear, when I said to buy index funds I mean that: buy. Do not buy options to buy them, not to buy on the margin. Don’t be extravagant. Getting chic is a good way to get caught in open pants.
Unlike stonk memes, low-rate index funds are actually a way to convince the Wall Street man. When you buy low rate index funds, you are not paying large management fees for some Tuxedo to decide which shares to buy for you. You just have everything in the index. (Good news, that includes Tesla!) You are not paying interest on margin loans and you are not buying options, where brokers earn a lot of money by acting as intermediaries. Investing in vanilla is cheap, which means that you are not paying the man a lot of money while trying to apply it to him.
And even if you use a brokerage for children, like Robinhood, who cannot execute trades reliably on the craziest days on the market, that’s fine. You are not negotiating. Negotiating is for suckers. You are a investor now. You have mutual funds. And someday, at a reasonable age, you will retire.
The man will never know what hit him.