These days, you don’t have to work on Wall Street to invest in the stock market. You don’t even have to be a finance professional. With as little as $5, you can invest in a piece of your favorite company via an app, like Stash, Acorn or others. What’s not to love?
Stock Market Investing and Emotion
As you may know, investing in the stock market can be an emotional roller coaster. Stocks by nature go through cycles of loss and gain. Over time, the stock market statistically will gain value. However, an individual stock may rocket to record highs and plummet to barren lows in the course of a day. If you are like most people, your inclination will be to invest in a stock that is doing well, and avoid stocks that seem to be losing value. The problem with this is, it means you will be buying when the price is high, and maybe selling when it is low. In essence, you won’t be gaining as much, and you may be losing a great deal. As humans, it is a hard thing to overcome. They say that if you buy and hold a stock over a long period of time, or better yet own a very diverse portfolio of stocks and hold them, you will eventually see overall gains. This can be very difficult to do if you are watching your portfolio ebb and flow day to day. Most advice you will receive about investing in the stock market will be to invest in a wide range, hold those stocks while investing more money into them at regular intervals, and don’t buy and sell too readily.
I recently put some money into a Stash account, to try my own hand at stock investing. I was hoping I would be so good at it that I could fire my Financial Advisor, and do it all myself, saving me money in fees. Turns out, I shouldn’t quit my day job, or fire my advisor.
My own stock picks were averaging about an 8% gain, which wasn’t terrible. Then, I decided to sell my lower performing stocks, as the market took an overall downward turn. This resulted in my gains dropping to about 1%. Meanwhile, my financial advisor has been averaging 19% gains, and hasn’t dropped anywhere near 1%. Thank heavens most of my retirement money is in his hands and not my own.
I fell into the emotional stock buying pattern, despite knowing it was a risk. I bought stocks like Apple and Tesla when they were at record highs. This meant I paid a great deal for a fraction of a share. Then, when the stock prices inevitably fell, I lost money. They aren’t worth the amount I paid. I will have to wait until their shares are priced at what I paid now to make my money back.
This is not to say that you shouldn’t invest using these apps. Maybe you will be better at not buying and selling than I am. Just know that it isn’t as easy as it seems, and there is not shame in leaving your investing to the professionals.