Stock trading and virtual currency once had the stigma of only being available to the wealthy or those with a vast knowledge of Information Technology (IT). The platforms needed to access either investment had many barriers to entry for consumers. Over time, these entry barriers naturally worked themselves out. Access to PC’s became more prevalent, smartphones began adding additional access points to investment platforms and virtual currency became more accessible via mainstream trading platforms similar to stock trading. These advances led to an increase in market competition driving down overall costs of participation. Now, there seems to be virtually unlimited investment platforms that offer trading of stocks, virtual currency and the like at either zero or minimal explicit costs.
With all of these advances in recent years, what was once a market for ‘few’ has become accessible to all, bringing along increasing popularity. Unfortunately, not all of these investments available to the average consumer will end up showing profits. Being both a CPA and CERTIFIED FINANCIAL PLANNER™ professional, I see not only positive returns from these investments but I also see the losses that can be incurred. That leads me to often wonder, is it a good financial decision for the general population to invest on their own using these options?
The short answer is yes, I do think it is a good financial decision…in theory.
The earlier in life you can begin making sound investments, the longer the time horizon is for an investment to receive compound growth. Alternatively, all investments have an inherent risk of losing your initial investment. Not every investment will be an income windfall. Although these online platforms have opened up many opportunities, they have also reduced the foundational knowledge that was once required to begin investing potentially adding overall risk of experiencing financial losses.
Here are a few suggestions to consider if you are planning on participating in self-managed investments:
– Develop a budget to ensure you have the available funds that would not break your emergency fund if you were to lose the entire investment.
– Do your research! Just because you read something on the internet or your friend told you something was the next “.com” boom, substantiate this with your own independent research from reputable sources.
– Consider mutual funds. Mutual funds provide low cost options and allow you to diversify across 100’s or even 1,000’s of stock positions while reducing risk, since your investment is spread across all of these positions.
– Understand how you will be taxed on investment gains and plan accordingly.
If after careful consideration, you decide self-managed investments are not something you are willing to risk, locate a CERTIFIED FINANCIAL PLANNER™ professional to you help make informed investment decisions. Consider adding a Certified Public Accountant to your plan to assist with tax planning options regarding your investments.
Published in the Victoria Advocate
Chris Laughhunn, CPA/CFP(R) is the Tax & Accounting Principal for Keller & Associates CPAs, PLLC and an Associate Advisor for KMH Wealth Management, LLC.