Investing advice that Reddit got very wrong — or very right

Yahoo

2 days ago

You can find advice about anything pretty much anywhere on the internet, especially if you need to learn about investing. The only problem is, not all of it is accurate or helpful, especially if it's from a random thread on Reddit.
Sure, Reddit can be a great place to learn new recipe hacks, ask embarrassing questions and receive some validation from other people experiencing the same thing you're going through. But when it comes to investing, don't take Redditors' word for it — check out what they're saying for yourself.
Here's a look at some of the best and worst investing advice on Reddit, why some of it is just downright wrong and what to do instead.
After scrolling through hundreds of investing subreddits, here are some of the worst investing suggestions and recommendations.
'I'm very lazy and I don't want to put any effort into investing. How important is rebalancing? Is there a way I could set up a portfolio where I only rebalanced every 10 years or maybe even never? Do I have to do it across all my accounts?' —Mysterious_Mix_6660
Here were some of the responses to this user's question:
'No; it's not super important. It can squeeeeeeze a tiny bit more out of your portfolio over the long haul, but not enough to make me excited.' — buffinita
'I've been at it for roughly 30 years and had rebalancing set for one investment for a couple of years. I stopped that a long time ago. No, I don't think it's worthwhile to rebalance. If you are indexing, the market forces are deciding in part how you should be invested (split between US and international; I don't own bonds). I've ended up 79% US/20% international just by drifting there.' — Sagelllini
Why this isn't helpful: It's tempting not to rebalance, especially if you don't have a financial advisor to help and have to figure it out yourself. However, it's crucial to rebalance.
'If you never rebalance your portfolio by selling stocks and buying more bonds, you will open yourself up to a much bigger impact from market swings than your risk tolerance may allow,' says Crystal McKeon, a certified financial planner and chief compliance officer of TSA Wealth Management in Houston. 'This could lead to panic selling in choppy markets like we are experiencing now. If you have a diversified allocation where you are comfortable with the range your portfolio can swing, then you are more likely to keep your long-term positions instead of panic fire selling.'
When you rebalance your portfolio, you reassess how your risk tolerance lines up with your long-term financial goals and how your asset allocation fits into that picture.
There is a 'lazy' way to rebalance though: You can invest with a robo-advisor. The best robo-advisors will automatically rebalance your portfolio for you.
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'So, I've been reading a lot, and most places predict Nvidia will have a $20 trillion market cap by 2030. SP [Stock price] of $134 currently, they say it could soar to 800 by then. Is it too late to go in, given the current price? Would it be worth it to start going heavy on Nvidia?' — humanityIsL0st
Why this isn't helpful: While the question is a valid one, the short answer is that going all in on one stock, or heavily tilting your portfolio toward one stock, isn't a great idea.
If you're invested heavily in just one stock and it performs poorly, you have nothing else in your portfolio to offset the loss and stabilize your returns. It's important to have multiple assets in your portfolio — think a combination of stocks, bonds, exchange-traded funds (ETFs), mutual funds and other assets — so that you reduce the concentration risk of owning a single stock.
'A diversified portfolio has been a solid strategy for decades now because it will allow you to ride out ups and downs in the markets with some investment losses balancing out other investments' gains,' says McKeon.
'I sold a coin at 3.5k profit that would've been 80k at the peak. Made a post about it a few days ago [about] how it randomly started getting volume again after being dead for ten months. Total investment was around 50 bucks.' — Single_Offshore_Dad
'So my plan is to go all in on meme coins. Why? Because once BTC takes out its previous highs (like on Oct 20th, 2021), every meme coin shot up for the next 2-7 days. I'm predicting that meme coins will start to climb and tank once news about BTC is being pushed mainstream to the general public within the next 6–12 months. I'm planning on cashing out on all my meme coins within 48hours after BTC breaks its previous high.' — Redditor
Why this isn't helpful: For starters, cryptocurrencies (especially memecoins) have no intrinsic value. Their prices are based on what others are willing to pay for the coin. In other words, their prices are based on 'vibes,' or how people feel about the coin, not cash flow or business performance. This makes it impossible to tell how the coins are actually going to perform. If you invest in crypto or a memecoin, you should only invest what you're OK with losing.
On top of that, investing in memecoins is somewhat glamorized on social media. There are stories of people who have gotten lucky and went all in on a coin and made a ton of money — and even more stories about people who've lost every dollar of their investment. The first Redditor above claims they could've made an $80,000 profit at the coin's peak, but even their strategy fell short. The reality is, most people who invest in these coins and do profit from them simply get lucky.
'Speculation is when you buy something hoping it will rise quickly, like crypto or 'hot' stocks,' says Jamie Bosse, CFP, and senior advisor at CGN Advisors. 'There is usually a lot of hype and not a lot of history or data. Investing, on the other hand, is about the value of assets growing over time to build wealth. One is chasing returns and trying to get rich quick, and the other is building a solid financial foundation.'
If you just can't resist, most financial pros say that if you are going to invest in crypto, don't put in more than 5 percent of your overall portfolio.
For all the bad investing suggestions on Reddit, there was plenty of good advice, too. From advocating for diversification, to explaining why maxing out your 401(k) should be a priority, these Redditors got it right.
'Stay in it for the long haul. Continuously add money. Ignore it when times are tough.' — Saul_T_C_Man
Why this is helpful: This is some of the best investing advice, period. A buy-and-hold strategy, or staying invested for the long haul, is typically the way to go for long-term investors. But how do you continuously add money to your investments and not touch it when times are tough?
One of the easiest ways is to use a strategy called dollar-cost averaging, which is where you gradually invest a fixed amount of money at intervals over time. By making regular and consistent contributions, you invest whether the market is up or down, average your purchase price over time and increase your share count.
'If you happen to be successful in timing the market, then you will do better. The recommendation is based on the fact that very few are successful in doing so.' — YoungestDonkey
Why this is helpful: There's a theory in economics called the 'efficient market hypothesis,' which basically means that markets are efficient and already factor in all available information. Because of this, consistently timing the market in your favor is nearly impossible because prices already reflect what investors know.
To time the market, you'd have to essentially predict the future. Unless you're somehow a wizard, this can be very difficult to do. What matters more is your total time invested in the market, allowing compound returns to do their thing.
Let's break it down. On average, the S&P 500 returns roughly 10 percent each year. This means if you had invested $10,000 in 1974, you'd have $2.5 million now, according to officialdata.org.
Legendary investor Warren Buffett is a proponent of this long-term approach to investing, often emphasizing the importance of buying and holding, rather than selling for a profit.
'I was telling my father that if we continued investing at our current rate, we should theoretically be able to retire with a good chunk of change (hopefully). And he said, 'Yeah, I thought that too when I was your age. I calculated and thought I'd retire a millionaire, but that didn't pan out.' So I asked him what he invested in, and he looked me dead in the eyes and said it was just one stock he invested in. So, folks, diversify, diversify, diversify.' — Illustrious-Nose3100
Why this is helpful: Investors diversify to protect against the unknown. If we knew what was going to happen, there would be no reason to diversify. We would all buy Nvidia (NVDA) for pennies a share in 1997, watch the 388,344 percent returns roll in and retire millionaires. Or we'd buy Netflix (NFLX), not Blockbuster.
Because we can't know, a solid investing plan should include diversification — and remember to diversify across companies, industries, countries and time frames.
You can make diversification easier by investing in ETFs or other funds that hold a broad range of assets, such as an index fund. You may also want to consider robo-advisors or target-date funds that automate diversification based on your goals and timeline.
'Max [out] your 401k and other tax-advantaged accounts before you start investing in a taxable account.' — JustMeerkats
Why this is helpful: Tax-advantaged accounts, such as an IRA or 401(k), offer tax breaks, either now or later. That's why maxing out your contributions to those accounts first can be a good move.
This strategy boosts your investment growth through tax-free compounding, and may include an employer match on your 401(k). Compounding explains how $10,000 becomes $2.5 million over 50 years. You might only get a 10 percent return each year, but that adds up over time. If you give your invested money enough time to grow, it acts as a snowball, picking up more cash on its way down the hill.
Also, these retirement accounts have annual contribution limits — $23,500 for a 401(k) and $7,000 for an IRA, so you can't exactly catch up later. You can make catch-up contributions after certain ages, but those amounts are lower and only available once you're closer to retirement. For example, the extra $1,000 in your IRA from 50 to 67 adds up to $18,000, less than three years of maxed-out contributions that you have missed out on in your 20s.
If you're not able to max out your tax-advantaged accounts, contributing whatever you can as early as you can is better than contributing nothing.
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'You don't invest to make as much money as possible, but to meet your financial goals. This means that you should limit the amount of risk you take while investing and that you don't gamble with your savings. Take as much risk as needed, but also as little risk as possible.' — Redditor
Why this is helpful: At the end of the day, you can listen to and read all the investing advice you want. Some of it will be good, other ideas will be bad. The most important thing that you can do as an investor is begin by establishing what goals you're trying to achieve. Maybe it's saving for retirement, maybe it's buying a home or maybe it's sending a kid to college.
The point is, reaching those goals will look different for everyone. Don't take on unnecessary risks. Instead, prioritize decisions that will safeguard your financial future.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.