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[earn money without investment for students]How Today’s Investing Environment Feeds Misperceptions And Speculation

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  Josh Strange is the Founder and President of Good Life Financial Advisors of NOVA.

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  It’s never been simpler to open an account on a retail trading platform like Robinhood or Coinbase. Because of that, investment markets are more accessible than ever before.

  For young would-be investors, high trading costs have traditionally been an enormous hurdle, so anything that helps them get started investing earlier is a good thing. The problem, however, is that platforms like this can feed misperceptions and speculation.

  To illustrate, consider that anyone who bought $100,000 worth of Pfizer shares on January 4, 2021, and sold on June 17, 2021, would have received less return on their investment than someone who put the same amount into Dogecoin. That’s despite the former developing a product that is meant to help end a global pandemic and the latter being a cryptocurrency with arguably no functional purpose that Elon Musk famously called a “hustle” on Saturday Night Live.

  None of it would be possible without such easy and cheap market access. But that’s the reality of the current investment environment where so-called meme stocks and digital coins can sometimes outperform solid companies with long, profitable histories.

  Of course, it would be foolish to ignore the impact social media has had on this frenzy of activity. A single Reddit page made millionaires out of some amateur investors, seemingly overnight. Meanwhile, countless TikTok and Instagram personalities have convinced their followers that trading stocks and digital coins is an easy path to making money.

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  I’ve seen some of these attitudes filter into my conversations with less experienced investors. Here are some takeaways from those discussions:

  Most financial advisors are not stock pickers.

  When I ask someone about their goals, occasionally I hear, “I’d like to double my money in six months.” Not only is that unrealistic, but it also ignores what financial advisors actually do — which is to implement a plan to grow and protect a client’s wealth over time and help them achieve their long-term objectives.

  Indeed, asset and portfolio management are only small pieces of the larger wealth management puzzle. And while some of my peers have a good track record of picking stocks and beating recognized benchmarks, investors should be wary of anyone who says they can consistently do that.

  Bottom line: Financial advisors help people build wealth over a lifetime, not overnight.

  Many have no idea what they are buying, let alone how much they are paying for it.

  Something else I frequently hear from clients is, “I want to buy a bunch of Company A,” which is invariably a company that has been in the headlines for experiencing huge gains.

  In that instance, I always ask whether they know what the company does. Sometimes they do, but many times they do not. From there, I ask if they know what the company’s multiple is (i.e., how cheap or expensive it is), a question that more often than not gets me a blank stare.

  Not knowing what you are buying is bad enough. Not knowing whether you are paying a reasonable price for it is even worse. No one would pay $100,000 for a $40,000 car. But I think that’s comparable to what people do when they buy a stock with an uncommonly high multiple.

  Investing and speculation are not the same.

  When you invest in something — whether it’s a bond, a piece of real estate or a stock — there’s a reasonable expectation that you’ll at least get your money back, even if the risks are clear. Speculation, on the other hand, involves being prepared to lose everything.

  To be clear, if you can afford it, there’s typically nothing wrong with using some of your money to speculate. But understand that some assets are like making a bet in Las Vegas — you could win big, but the chances are just as great that you could suffer massive losses.

  Many investors forget about taxes.

  Let’s assume for a moment that it all works out. Armed with a Robinhood account and $10,000, someone sees their portfolio swell after buying a series of stocks that multiplied many times over. All the better: They sold everything while they were ahead.

  That’s great news, right? Mostly, provided they are aware of the tax implications associated with making those types of trades. Many are not. If they didn’t hold those stocks for more than a year, they could suddenly get hit with a big tax surprise — both due to the gains themselves and the fact that their marginal rate could suddenly be higher because of them.

  While stocks have experienced periods of volatility in recent months, indexes have largely recovered since the depths of the Covid-19-related plunge last spring. I believe that’s due in part to low interest rates.

  At the same time, it would be foolish to ignore other factors, including the impact discount brokerages and social media have had on some people. Making money buying stocks is neither as easy as today’s environment makes it seem, nor is it usually a good substitute for coming up with a more comprehensive financial plan.

  The information provided here is not investment, tax, or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

  Forbes Finance Council is an invitation-only organization for executives in successful accounting, financial planning and wealth management firms. Do I qualify?

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