This article was featured in Maine Women Magazine, September 2021
For the rest of our lives, we’ll be comparing Maine Women Magazine September 2021 “pre-pandemic times” and “post-pandemic times.” We’ll reflect on how we spent our days in quarantine; the hobbies we picked up and quickly abandoned, and the activities we carried into 2021 and beyond. With no sports on TV, no restaurants or bars to visit, the internet at our fingertips and in many cases a little extra money in our pockets, many young Americans ventured into the world of trading individual stocks.
While we don’t think individual stocks are the best option for everyone, especially those just starting out with small sums of money, we’re certainly not against them on the whole. They play an important role in many of our clients’ portfolios. What we don’t advise is placing bets on companies to make a quick dollar in a month, a week, or even within a day.
To be a successful day trader, you have to be right day after day. If you’re constantly trying to capitalize on hot new stocks every week, you must invest significant time into personal research and consistently make correct decisions about what to buy and sell. Also, you must outperform professional day traders with access to superior technology and research material than yours. Conversely, at Golden Pond we prefer to buy companies with strong balance sheets and positive long term growth outlooks, who sell goods and services that will be in high demand for many years to come. We do thorough research at the outset, pick quality brand name companies, and let time & compound interest do its thing. Every quarter, we review our individual stocks and decide if it’s time to let any go, again after doing extensive research on the company’s long-term outlook.
If you are spending significant time making short-term changes in your portfolio, you are probably more likely to make a bad decision when the market takes a downturn. Paying attention to your money is a good thing but getting too wrapped up in daily performance can lead new investors to panic and sell at the bottom of a market correction. We help clients determine how much income they need from their portfolio in the next eight years and allocate that to more conservative investments (not stocks!) so they don’t need or want to lock in losses when the market inevitably drops.
If you choose just a few individual stocks as opposed to funds, your portfolio is probably not diversified enough. You shouldn’t put all your eggs in one basket no matter how sturdy the basket seems. Every company is subject to unique risks, but the effect of those risks is greatly reduced by owning a variety of companies across all sectors of the economy. Investing in a low-cost fund that owns hundreds of companies is an easy way to get diversified, and it encourages a more “hands off” approach.
It can be tempting to start day trading when your friends are bragging about the money they’ve made, and advertisers are making trading seem fun and exciting. The reality is, it’s easy to make money in a bull market when the price of everything is rising rapidly. And sure, investing is interesting and can be a little fun – but we believe that a good investment philosophy is straightforward and frankly, a little boring.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
All investing involves risk including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
Past performance is no guarantee of future results.
Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC.