This story is available exclusively to Insider subscribers.
Become an Insider and start reading now.
- As the stonk memes fade, amateur investors are asking: what’s next?
- I have a hot tip for you: you’re not actually that smart. You can’t beat the market.
- You should own low-fee index funds. That’s how you stick it to the man: by paying low fees.
- This is an opinion column. The thoughts expressed are those of the author.
- Visit the Business section of Insider for more stories.
A problem with bull markets is that amateur investors can become convinced they’re good at something.
Let’s suppose you got into “investing” — but really speculating — last spring. Maybe you were working from home, bored and not going out to restaurants or on vacation, but still earning your salary, and you didn’t know what to do with your time.
So after a couple of weeks of playing with your Nintendo Switch, you opened a Robinhood account.
Probably, you’ve done well, because the market has done well. Stocks have nearly doubled since their pandemic trough last March. Bitcoin is way up, too. There are always ways to lose money, but on average, even if you threw darts at a dartboard to pick stocks, they probably went up — a lot. So you might feel pretty proud of yourself even if your stock picking performance has been average, or a bit below average. Even below average has been pretty good in recent months.
And now in recent weeks you’ve gotten into meme stocks. Some old millennials like you came up with theories about why companies they’re nostalgic about — GameStop, AMC, Tootsie Roll, whatever — are undervalued. So they bought. You bought. And maybe you made money, buying GameStop at $30 and selling in the hundreds. Or maybe, like Barstool Sports founder Dave Portnoy, you took a bath. In either case, now that the meme frenzy is dying down, you may be asking yourself: What now? What’s the next hot thing?
Well, I have just the hot stock tip for you: The next big thing is low-cost index funds.
Now to be clear, I’m not a financial advisor and this is not an offer of securities, just common sense tips about how an adult might manage an investment account.
What’s so great about low-cost index funds? Over time, as the economy grows and corporate profits go up, they tend to go up too. On average they produce a nice, tidy return, beating most professional money managers. And you don’t even have to read any Reddit boards to figure out when to buy and sell them!
Plus, an advanced tip: To the extent you can, buy these in tax-advantaged accounts. Fund your 401(k) as much as you can afford to after paying your expenses and funding an emergency saving account. If you don’t have access to a 401(k), fund an IRA — or, if you’re in business for yourself, a SEP IRA, which allows more contributions.
And I want to be clear, when I said to buy index funds I mean that: buy them. Don’t buy options to buy them, and don’t buy them on margin. Don’t get fancy. Getting fancy is a good way to get caught with your pants down.
Unlike stonk memes, low-fee index funds are actually a way to stick it to the man on Wall Street. When you buy low-fee index funds, you’re not paying big management fees to some suit to decide which stocks to buy for you. You just own everything in the index. (Good news, that includes Tesla!) You’re not paying margin loan interest, and you’re not buying options, where brokers make big money acting as a middleman. Vanilla investing is cheap, which means you’re not paying a lot of money to the man as you try to stick it to him.
And even if you use a brokerage for children, like Robinhood, that can’t reliably execute trades on the market’s wackiest days, that’s okay. You’re not trading. Trading is for suckers. You’re an investor now. You have mutual funds. And some day, at a reasonable age, you’re going to retire.
The man’s never going to know what hit him.