Got a hot stock tip? First, spend some time on the financial news sites and try to get a sense of what’s going on in the stock market.
Things are a disaster. You should sell. No, things are going great, and you should buy.
There’s a change coming in the next few weeks that will crush the economy. Unless the change doesn’t come, or something different happens, or it doesn’t matter.
If you watch old movies about stock traders, you always see the same thing. A roomful of men in suits screaming out prices.
That was how trading actually happened for many years. It still happened that way until recently in some commodities markets.
Now it’s silent on the trading floors because all the screaming is virtual. Electronic trades buzz down wires at each other, in a head-on crash with reality. Their bets will be right or wrong. Their trades will be good or bad.
Some investors are leveraged to the hilt. Others are totally passive and simply in a holding pattern. Some are short-selling but forced to buy when prices go up.
Now multiply all that activity by trillions of dollars in various currencies, all moving at the literal speed of light thanks to fiber optics.
It’s not a room full of screaming men. It’s a planet-wide battle of electrons and ideas and fast money, moving in real time and reacting to news, rumor, guesswork and sometimes sheer math.
Twenty years ago, a retail investor might have gotten a hot stock tip. And he or she might have traded on that information and, quite possibly, made money.
But those days are long gone. Acting on a hot stock tip is high risk to say the least. Nobody really has “inside” information anymore, thanks to strict federal regulations.
If they do, the info is probably illegal or just plain wrong. You could lose money as easily as make it, and there would be no way to know the difference.
If your plan is to retire on your investments, the way to get there is by owning growth investments. That means stocks.
To avoid the risk of picking wrong, it’s easier to own a lot of stocks and ultimately easier to own all of them through an index fund. After that, you might consider a portfolio approach to smooth out the ups and downs that are common with stock investing.
The less you do, the more likely you are to come out ahead. Highly skilled, professional money managers struggle to keep up with the overall stock market once you subtract their fees.
Retirement investing should not be a struggle. In fact, it’s easy to do and requires very little attention, if you set it up right.
The rest is of what you hear about investing is mostly noise and best ignored.