Issue #59: Should I risk it all for Elon Musk?

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September 9, 2020 // ISSUE #59

Hi y’all —

When I was in fifth grade, my class played the stock market. We used fake money, but the buying and selling felt very real. So did the stock picking: I remember choosing companies with the sole intention of impressing the boy I had a crush on, as if he’d see my portfolio and realize, at 11 years old, that I was his soulmate.

Shockingly, this was not a recipe for success. As I discovered during my quarterly review of his Facebook profile, my fifth-grade crush is engaged now — not to me — and I still have a lot of questions about investing.

There’s been near-constant headlines lately about the Apple and Tesla stock splits, the race for a coronavirus vaccine, the fluctuations in the Dow and more. It’s all got me thinking, and not just about elementary school. Should I use this as an opportunity to invest in individual stocks?

I called Linda Zhang, a senior advisor to finance company SoFi, to get some background on what exactly is happening with the stock market. She told me part of the reason I’m hearing so much buzz is that the markets have generally rebounded from their major contraction back in March — and people are paying attention.

“2020 will be remembered as a year of a great pandemic but also as a year of great recovery,” she says. “There’s a divergence between what’s going on in the real economy and what’s going on in the capital markets.”

This isn’t unheard of; we saw something similar during the Great Recession. The market crashed in March 2009, but by the end of the year the S&P 500 had more than recovered.

Back to the present. A SoFi survey found that one in five people started trading securities for the first time digitally in the past couple of months. A third of people who already were trading increased their activity.

So even though we’re still experiencing some scary unemployment numbers and economic downturn, the market is thriving. This is partially thanks to trends that predated the pandemic, like the rise commission-free trading, as well as recent ones, like the Fed’s stimulus program and savers having extra cash to spend.

Investors may also feel it’s easier to get into the market right now due to stock splits at places like Apple and Tesla. Todd Lowenstein, equity strategy executive at The Private Bank, explained that stock splits are when a company divides its shares.

Here’s an example. I have one share that trades at $100, and the company enacts a two-for-one split. Now I have two shares that trade at $50. The price per share has dropped, but the market capitalization hasn’t changed.

Companies do this because, “historically speaking, if a stock price gets too high you will likely crowd out retail investors,” Lowenstein says. (Retail investors are regular, non-professional investors like me — not institutions.) A stock split “lowers that hurdle so retail investors, younger investors, can participate in some of these names.”

Sweet. But if the market is recovering, everyone is investing and the barrier to entry is low right now, does that mean I should start buying individual stocks? I mean, I’m familiar with Apple. I have an iPhone. I obviously do not have a Tesla, but I think Elon Musk’s tweets are funny.

Lowenstein was not so enthusiastic about that idea. He told me it’s better to come up with a long-term, well-researched investing plan as opposed to making sudden moves.

“If you jump in and jump out based on conditions right now, that’s a surefire way to lead to mediocrity or really bad investing results,” he says. “You want a plan underneath you because it’s a foundation. It’s like a balance to keep you steady during volatile times, and markets are volatile.”

Case in point: what happened yesterday and last week.

He said one good way to dip my toes into the metaphorical water is through target date funds, which become more conservative the closer I get to a certain date (like my retirement year). Zhang recommended checking out exchange-traded funds, or ETFs, which are baskets of securities. Both are relatively passive investments — solid options that’ll run in the background while I learn more about the landscape and determine my risk tolerance.

“Don’t try to get into the fast lane immediately,” Lowenstein adds.

THE BOTTOM LINE

(but please don't tell me you scrolled past all of my hard work)

The markets are doing well, but that can change quickly. Though it’s tempting, I probably want to pump the brakes on individual stocks and explore funds instead.

Before I move any money around, Lowenstein recommended considering the upside potential versus downside risk. He also urged me to be patient and rational, not emotional, when it comes to chasing a market high.

“You want to ask yourself, am I speculating or am I investing?” he says.

via GIPHY

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RECEIPT OF THE WEEK

check out this crazy celebrity purchase

via Instagram

One Direction’s Liam Payne recently proposed to his 20-year-old girlfriend, Maya Henry, with a ring worth $4 million. The rock may or may not be a family heirloom, but an expert said it’s “around 20 carats.” With a ring like that, she’ll definitely be turning heads when she walks in the do-o-or.

INTERNET GOLD

five things I'm loving online right now

1	Current mood: Tilda Swinton walking the streets of Venice in silk designer pajamas.
2	This piece in The Guardian about people who have turned their basements into tiny worlds is absolutely fascinating. I’m especially impressed by the lengths the builders went to for accuracy — finding Disneyland music, hand-molding bricks, setting up hotdog stands, putting down cobblestones… wow. Also, check out this quote: “Watching a movie or reading a book, that’s one thing. But it’s different to have a physical location that you can escape to — especially some place that you know is private or that you kind of control, so that way you can make it as magical as you want.”
3	Taye Diggs’ TikTok is pure chaos.
4	New Guinea used to have ultra-rare “singing” dogs that communicated with musical-sounding howling. Scientists had thought they all but disappeared in the wild, but researchers have discovered they still do! 10/10 would pet.
5	What am I up to? Oh, just sitting here thinking about these really cool fish illustrations.

401(K)9 CONTRIBUTION

send me cute pictures of your pets, please

CREDIT: WINQUIST

Here is Baxter, a pup who knows just what to do when the stock market gets hairy.

Gonna go look through my elementary school pics for #TBT content.

See you next week.

Julia

P.S. I loved talking credit cards last issue! Scholar Rachael told me she knows it's hard to find the perfect credit card, but she selected Discover because it was no-fee and had a good cashback deal. Scholar Garey recommended having cards at two major companies (say, one MasterCard and one Visa) in case one lender encounters a problem with its system. And finally, Scholar Mallorie said she likes the Chase Sapphire Preferred because of its travel rewards.

P.P.S. What’s your opinion on individual stocks? Do you own shares of Apple or Tesla? If you had to turn your basement into another world, what would it be? LMK at

julia.glum@money.com or @SuperJulia.

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Issue #59: Should I risk it all for Elon Musk?

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