3 min read

Ask Your Advisor About the Investment Trend You Read About

If you’d been scrolling through investment posts on Reddit last January and ended up in the WallStreetBets subreddit, you might be a multi-millionaire today. Amateur investment analysts who participated in the online community realized that major investors were short-selling GameStop stock, essentially betting that the failing video game retailer’s stock would continue to lose value. So they started an investment trend of buying up public shares of GameStop stock, driving up its value and forcing the original investors to buy back the stock for far more than they paid for it.

A lot of people who saw the Reddit posts where this plot was hatched decided to buy in, and were rewarded with huge gains. One 23-year-old investor told Forbes that his original investment of $28,000 grew to $3.8 million in just a few weeks. Those new millionaires were both smart and lucky. Putting nearly $30,000 into an investment because you read about it on Reddit is obviously a huge financial risk. The publicity of the GameStop case has surely resulted in a lot of people losing money because they want to be part of the next big investment trend they saw online.

Acting quickly and taking a big risk on a new investment is your prerogative. But loop in your financial advisors first. Social media and online articles are no substitute for the customized services of a professional investment advisor.

5 Reasons to Speak to Investment Advisor Before Making a New Investment

  1. You need to know what you’re actually signing up for.
    You’re not a professional investment analyst, so you can’t be expected to be an expert on the complexities of various investment strategies. An article that you read about a developing investment trend might highlight the opportunities and downplay the risks, or fail to mention that most investors aren’t seeing the kinds of big rewards that make headlines. For example, the growing popularity of cryptocurrency has enticed a lot of people to buy Bitcoin or other cryptos because they think it’s a quick way to get rich. But one 2022 analysis by Jump Crypto found that about 80 percent of crypto token investments are underwater a year after purchase.

    That doesn’t mean that investing in cryptocurrency is necessarily inadvisable, just that it’s important to go into a new opportunity with your eyes wide open to the risks and realities. Speaking to an investment advisor about a possible investment is a little like consulting a doctor about your symptoms instead of trusting WebMD to give you a diagnosis. Reading about trends online might give you some ideas for investments you’d like to explore. But you need to sit down with a professional to find out how a possible new investment would fit into your specific financial picture.
  1. Trendy investments can be volatile, and your risk tolerance matters.
    Investment trends tend to involve emerging markets and cutting-edge technologies like artificial intelligence and pharmaceutical innovation. Everyone wants to get in on the ground floor of an exciting new investment, but there’s a lot of volatility in new and emerging markets.
    Buying foreign securities means that geopolitical instability could tank the value of your investment at any time, for example. Risk-averse investors or people who are close to retirement may not want to take a chance on an investment vehicle that could go bust.
  2. Your current portfolio might be flourishing.
    “If it ain’t broke, don’t fix it” is sometimes the wisest advice investors can follow. Shaking up your portfolio might set you back on the path to achieving your big-picture financial goals. Say you and your investment advisors have already built you a portfolio that’s well balanced and is yielding greater returns than you expected. Do you really want to pull money from investments that are trending upward, knowing that you might lose out on even greater returns in the future?
  3. There could be a different investment trend that’s better suited for your priorities.
    Maybe you and your investment advisors agree that you can afford to take a risk on a potentially volatile new investment. That doesn’t mean the investment trend that you read about is the right one for you to jump into. If you’re going to take a risk on something new, speak to your investment advisors about your financial and personal values to identify the opportunities that are best suited for you. Someone who’s passionate about the environment might feel better about investing in an exciting new ESG fund rather than buying cryptocurrency, since crypto mining uses a massive amount of electricity and contributes to greenhouse gas emissions.
  4. A second opinion provides peace of mind.
    You already have enough to worry about. Don’t lose sleep because you made an impulsive investment and now you’re wishing you could take it back, or worrying about how this decision is going to affect your retirement plans. Speaking to a professional investment advisor before you invest gives you a chance to ask all your questions so you feel confident that you’ve considered all sides of a new opportunity before making an informed decision.

Sachetta, LLC’s team of advisors helps clients align their investment decisions with their personal and financial goals. If you’re thinking about making a change to your portfolio because you heard about an interesting new trend, reach out to us first. A short conversation with a knowledgeable, independent investment advisor may help you avoid an expensive mistake—or give you the confidence to take the leap. Contact us today.

Joseph Sachetta

Joseph Sachetta, CFP®, CPA/PFS, MBA, MST
For over 40 years, Joe has worked in finance and accounting. He is a Certified Financial Planner, and a Certified Public Accountant. Joe’s passion lies with helping his clients strike a balance between living for today and saving for tomorrow.