In this special episode of Adam Talks, IRA Financial’s Adam Bergman Esq. discusses what is happening with GameStop and other publicly-traded stocks and how speculation works with an IRA.
Here’s a special edition of Adam Talks discussing what has happened with GameStop and other stocks that went through the roof recently. Speculation is not for everyone, and just because a bunch of Reddit posters blew up the system, doesn’t mean it will work for everyone. Generally, slow and steady wins the race when it comes to investing. This is especially true for retirement savers. Mr. Bergman shares his thoughts about what happened with GameStop, AMC, Blackberry and other stocks and how you can use your IRA to invest.
What Happened with GameStop?
If you don’t know, GameStop is a brick and mortar business that sells video games and other peripherals. In today’s society, more people are getting away from physical games and looking more at online downloads. This is one of the many reasons why it’s baffling to see the price of GameStop stock soar. It went from around $18/share to well over $400 during trading hours, before finishing up near $350 on January 27. Six months ago, the stock was barely worth five bucks.
Well, why the extraordinary climb this year? Hedge funds hated the stock and decided to short it. This allows big investors to borrow a share of the stock and then sell it. Assuming the price goes down, they than buy it back and a lower price and pocket the difference. However, Redditors, specifically those from WallStreetBets group, decided to teach Wall Street a lesson. They did what’s known as a short squeeze. When the GameStop was being short by billionaire hedge funds, the Redditors started buying up the stock, which pushed it’s price higher. The short sellers had to buy back as well, which pushed the price higher.
Novice traders got in on the action and made a huge payday, while the hedge funds lost billions of dollars. The Redditors proved that the Stock Market can be manipulated and volatile, even for smart investors. Which brings us to the crux of this podcast.
Risk vs. Reward
When it comes to investing, everyone has a certain risk tolerance, especially when it comes to saving for retirement. After all, everyone wants to retire while they still can enjoy life. Depending on the type of person you are, you might go safe with your investments, or swing for the fences. Speculating on stocks doesn’t work for the typical investor. You might get lucky and hit a home run. Unfortunately, that’s not generally the case. What the GameStop debacle proves, is that traditional investments, are just as hit-or-miss as nontraditional, or alternative, investments.
For example, if you said to someone five years ago that the biggest return you will get is with a digital currency, called Bitcoin, you would be laughed at. It was valued at about $400 per “coin.” As of today, February 8, 2021, that same coin is worth over $44,000! Real estate has been the number one alternative investment for years. Obviously, there are housing market booms and busts. But overall, the real estate market has been steady. Everyone needs a place to live and work.
If someone says stick to traditional assets, like stocks, bonds and mutual funds, ask them about GameStop. This is not to say you should stay away from stocks completely. A well-rounded portfolio includes different types of asset classes. Imagine you had 10,000 shares of Gamestop at $2, you would be sitting pretty right now.
Point being, alternative asset investing is no riskier than the stock market. Owing a house in a Self-Directed IRA can bring in a steady stream of income. Buying cryptos, speculating on stocks and investing in a business all come with risks. But those risks are no greater (or less) than other asset classes.
I think what the GameStop craziness can teach everyone is that investing is not an exact science. What works for someone else, might not work for you. It’s up to you, as an individual, to work with a financial advisor to devise a plan that fits your needs and risk tolerance. If that includes stock speculation, Bitcoin, real estate or crowdfunding, go for it! Don’t let anyone tell you what you should or should not invest in. Do your homework, know the risks and do what you want!
Thanks for listing to this special edition of Adam Talks. As always, you can find all our podcasts on SoundCloud, or right here, on the IRA Financial website. We’ll see you next time with a new episode!