Is Now the Time to Get Greedy? by Nate Eads, CFP®

The Beginning

I started my career in May of 1996, which puts me 25 years into a career that I had no plans for coming out of college.  After graduating in December 1995, my “career” aspirations were to head out to the mountains of Colorado and make a living skiing with my good friend Mike.  We quickly lined up jobs at a major ski resort and figured things would be all downhill from there.  We were hired in the morning and told that we could spend the afternoon and next two days on the slopes before starting work the following Monday.  That’s where things took a bad turn, as did I, resulting in blowing out my knee and ending my ski season and subsequently my ski career.  Ever concerned about keeping his new employer happy and more likely himself a ski partner, in a span of about 36 hours Mike managed to load me up in the back seat of his 1985 Trans Am, drive back to Elgin Illinois, drop me off at my parents, and return with a replacement who took both my job and my dreams.

A few months and several job offers later, I decided to go work for a small financial planning and real estate investment/property management firm in the Chicago suburbs.  Originally hired to manage the maintenance department and staff on the property management side, I quickly was drawn to the other side of the business helping individuals plan and invest for financial independence.  It was also during this time the book The Millionaire Next Door was published.  Upon reading the book and being mentored on the financial planning side of the business, I was hooked.  I soon enrolled in the College for Financial Planning to obtain my Certified Financial Planner™ designation and I was on my way!

The Technology Bubble

The late 1990s was my introduction to the investing world.  It was the height of the technology boom and seemingly impossible not to make money.  One just had to throw a dart and whatever stock was picked was sure to go up in value, especially if it was in technology.  Long-term investing was a thing of the past, as day trading was the way to create quick wealth.  As tends to happen after a prolonged bull market, speculative investing took off, resulting in shares of unprofitable tech companies being bought regardless of their fundamentals and even Beanie Babies became the next big money maker.  Of course, many of those technology companies went bust and Beanie Babies can now be picked up on eBay for a couple bucks, quickly erasing a significant amount of perceived fortunes.

The Great Recession

After working at a couple different firms, I joined Moller Financial in the spring of 2007.  The economy had recovered from the technology bubble and now real estate was the sure-fire way to riches.  Refinancing was a semiannual event as people couldn’t get money out of their homes quick enough as home equity grew at an astronomical pace.  Flipping houses was commonplace, even for those with no experience in real estate.  Many were not content with investing in the stock market using more traditional methods, and instead looked to get unrealistic returns utilizing high-cost hedge funds or investing “gurus” such as Bernie Madoff.  It didn’t matter that investors didn’t understand how the money was being managed as long as the promised returns would be big.  As typically happens, after some short-term success stories things quickly fell apart for most involved.

Today

We have experienced over a decade of outstanding returns in the US stock market.  While there have been some bumps along the way, including last year’s record-setting pace to a 30% decline, returns for the S&P 500 have been well above normal, averaging over 15% per year since 2009*.  Despite these returns, a familiar trend seems to be occurring in that many investors are not satisfied with traditional investing strategies and are looking for even better returns via cryptocurrency, using trading apps such as Robinhood to push prices of stocks like GameStop, or even greater speculation in non-fungible tokens (NFTs).    *Source

25 Years = A Few Lessons Learned

1. During times of prosperity, there is a propensity for greed which is seldom rewarded.  Even while investors experience what should be acceptable returns on their traditional investments, many succumb to the urge to do even better elsewhere when markets are hot.  We are inundated with stories about a friend’s brother who turned a huge profit by putting all his money into the investment du-jour, be it cryptocurrency or a can’t-miss stock.  The stories of getting rich quick are plentiful, however very few ever do so.

1. Trading is different than investing, and the latter is much more reliable for building wealth.  Day trading, flipping houses, or buying Dogecoin is not investing; it is trading.  Hoping to hit it big in speculative opportunities that rely almost solely on short-term price fluctuations is a difficult way to make money over time.  While a few lucky individuals may turn huge profits, it is often at the expense of the majority.

1. “Missing out” is no reason to invest.  All too often people put their money into things that they don’t understand simply because they hear of others doing so.  While it may seem that everyone else is taking big profits in the latest investment craze, if you don’t have time to do your due diligence, understand what you are buying, and develop an actual strategy, you are likely much better off to leave it alone.

1. Boring is good. Diversification, discipline and simplification in investing are, in my opinion, the best ways to build wealth.  While discussing the intricacies of an index fund may not generate a lot of hits on Twitter, utilizing low-cost and transparent investments along with a disciplined investment strategy is the most sure-fire way for investors to achieve most realistic financial goals.

During my first 25 years in wealth management, we have experienced two of the biggest market declines outside of the Great Depression.  Yet those that have stayed with a disciplined and diversified investment strategy have weathered the storm.  Just as many portfolios and financial plans are devastated by panicking out of bear markets, many others are ruined by abandoning their strategy when things are going well by reaching for excessive returns.  Despite what Gordon Gekko might say, greed is not always good.