Have you ever played the game “what I’m going to do if I win the Powerball”? It’s a lot of fun to daydream about all the what-if scenarios. While I don’t play the lottery or advocate that you play the lottery, I’d be telling a lie if I said I’ve never bought a Powerball ticket. I was recently surprised to learn that they cost $2 now instead of just $1! While fun to dream, we all understand winning the lottery has a very, very low probability of actually happening. I want to be careful comparing any type of investing to a game of chance like the lottery, but it has become quite obvious to me that there has been a significant increased interest in speculative investments over the last few years.
It has become much easier than ever to speculate given the proliferation of discount brokerage services, cryptocurrency evolutions and social influences such as Reddit. It’s hard to pin down one reason for the increased interest in speculative investments, but the increased interest does give me concern. Speculative investments can often have wild and unpredictable outcomes. If there is a chance for a significant and fast return, then there is a chance of a significant and fast loss. My suggestion to those that have interest in speculative investments is to keep it a very small portion of your overall portfolio. Put speculative investments into the category of “If I lose 100% of this investment, it won’t damage my financial situation in a material way.” So, while fantasizing about what you will do with all those profits can be a lot of fun, keep those investments very small.
As always, we hope you find the Weekly Market Review both informative and interesting. Have a great week!
Trevor N. Coe, CFP®