It is no secret that there has been a massive surge of retail investors buying stocks during the pandemic. Between ‘meme’ stocks, a ‘YOLO’ (You Only Live Once) / FOMO (Fear of Missing Out) environment, massive government spending, stimulus checks, historically low interest rates, and government mandated lockdowns, money has flooded into the stock market. Did you start buying individual stocks for the first time since the pandemic started? Or have you stayed true to mutual funds (and ETFs)? Or have you been investing in individual stocks for a longer time?
The S&P 500 (SPX) is 2% from its all-time high. The Dow Jones Industrial Average (DJI) is less than 5% off its all-time high. The Nasdaq Composite Index (IXIC) is 1% from its all-time high. The S&P 500 and Nasdaq both hit all-time highs last week. Where does the market go from here? The historical annual return of the S&P 500 from 1957 through 2018 was around 8%. Since the stock market bottomed on March 23, 2020, the stock market has risen 86%. Annualized over the last 15 months, that is a 68.8% return. This means the stock market could go NOWHERE for YEARS and still maintain the historical average return of 8% per year.
If nothing else, there is fairly widespread speculation in the financial markets, commodity markets, and cryptocurrency markets.
What’s Your Plan?
If you’ve made money in the recent cryptocurrency or stock market mania, that’s great. Do you have a plan for keeping the money you have made in highly volatile, risky assets? All investments have risk, so while they may be up a lot right now, they can come crashing back down rapidly. Bitcoin (BTC), the largest cryptocurrency, peaked just shy of $65,000 on April 14, 2021 and then immediately lost over 50% of its value, dropping down to $31,100 on June 8, 2021. The Wallstreetbets Reddit crowd pushed ‘meme’ stocks sky high in January and again over the last few weeks. Gamestop (GME) was the leader in the late January round of ‘meme’ stock trading frenzy, and over the last few weeks AMC (the movie theater chain) has been passed the torch. Gamestop ended 2020 with a price of $18.84 per share and peaked on January 28th, 2021 at $483 per share. Since late January, Gamestop has traded as low as $38.50 per share and is now over $213 per share.
Buying cryptocurrencies and highly volatile stocks is okay, but almost all of these investments should be considered highly speculative and very risky. While you can make a lot of money, you can also lose a lot of money doing this. Plenty of people have made very poor decisions with recent purchases of cryptocurrencies and ‘meme’ stocks.
Wrapping up
Even though stocks are at all-time highs, there is plenty of risk in the financial markets right now. You should protect your gains before they vanish with a drop in the stock market. Volatility is rising, and as Raoul Pal said on Friday during the Real Vision Daily Briefing (at the 56:00 mark), “Volatility is contagious.” Last week, there were some fast and rapid moves in multiple different asset classes. Rapid movement, whether up or down, is volatile movement. It can be in ‘meme’ stocks, commodities, cryptocurrencies, stock market indices, and fiat currencies.
If you’ve made money, how has it impacted your movement towards financial independence?
In my next post, I’ll go over some major risks to the stock market and the economy and what that could mean moving forward.
DISCLAIMER: This is not financial advice. For personal advice, one should consult a professional with government accredited certifications. I hold no ‘professional’ certifications as noted here.
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