I’ve done some digging and will share the most up-to-date info I’ve found on new stimulus checks. And for the short-answer, there’s still no certainty on the amount or the timing. But more importantly, whether it comes through or not, we should have learned from the last one. For example, there was a spike in new openings for Robinhood and other trading accounts.
That’s great that more people are interested in investing. Barriers to entry have never been lower and anyone can generate the same percentage returns as Jeff Bezos or Bill Gates. If you buy just one share – or even a fraction of a share – of Amazon or Microsoft, you’ll see the same percentage returns as those other shareholders. You become a co-owner in the business with those other investors.
I’ve been preaching the huge benefits of investing – and saving – for close to a decade now. My portfolio has made some huge strides and anyone can follow suit. Although, with the wave of new stimulus check investors, I’m seeing some big mistakes. And to be honest, I’ve seen some “experienced” investors make these same mistakes as well.
So today, I’m going to review four issues to look out for…
4 Investing Mistakes to Avoid
- Early Wins Can Lead to Bigger Losses
It’s a bit counterintuitive, but I’ve seen many first-time investors have big gains on their first trade or first few trades. And that’s great… but it can often lead to overconfidence.
Some of these early investors – thinking they have the hang of investing – follow up by investing even more money into a single stock. But eventually, losses follow and they’re amplified by that bigger investment. So, just be cautious with the amount of risk you take on.
- Hindsight Bias
If only I had a nickel for every time I’ve heard, “I could have invested in Apple back in the day…” Or replace Apple with any other successful company today. The problem though is that they didn’t invest. It’s easy to see the best investment opportunities after the fact. But in reality, for every Apple back in the day, there were likely 50 other companies that looked just as promising… but they failed. So, if you’re piling your life savings into one company, beware of the risk.
And with these first two points, maybe you’re noticing a theme here… risk is just as important – if not more important – than reward. That’s why I put together a video that focuses on risk management. It’s not a sexy topic but understanding risk really is vital to becoming a successful investor.
- Thinking a High Share Price Makes it an Expensive Investment
This mistake is one of the most common. Companies can arbitrarily control share price with stock splits or reverse splits. For example, let’s say there’s a $100 million business with 100 million shares outstanding. You could then buy one share for $1… but if the company has a 1-for-10 reverse split, the total number of shares outstanding would drop to 10 million. And a new single share would be worth $10. That’s also assuming the total $100 million business valuation doesn’t change, which normally there’s a little movement around split announcements. But still, companies can issue an arbitrary number of shares.
Overall, share price alone doesn’t tell us much. Instead, we should look at the price relative to the company’s earnings – aka the price-to-earnings ratio – and other more useful metrics. One of my favorites is the EV-to-EBITDA ratio. And maybe I should put together a video on that. If you’re interested, just drop a comment down below.
- Having Unrealistic Expectations
If you’re looking to double your money every year, good luck with that…. Over most longer timeframes, the stock market averages annual returns of around 8-10%. And when looking further, the average investor sees even lower returns. Of course, in any given year you could see much higher gains, but when factoring in the losing years and positions, the average drops. Just keep that in mind 😊.
There are many factors – like living in a lower interest rate world – but for now, I’d personally be happy with 7% average annual returns going forward. That’d be roughly doubling my starting investment every ten years. And when I project my savings and investment returns going forward, I factor wide margins of safety. That way, I’m often pleasantly surprised by better outcomes. That also flows into my work ethic of under promise and over deliver.
I hope this insight helps you make better investment decisions with your past income and savings. And now, as I mentioned before, I’ve looked into the possibility of a second stimulus check. So, here’s some insight on that topic…
There are two competing legislative proposals that would provide another stimulus check, the HEALS Act and the HEROES Act. And in both, they propose another $1,200 stimulus check with the same limitations as before. If you’ve made $75,000 or above, the amount of the check drops going up to $99,000. Above that, you wouldn’t receive any of it.
The problem though, there’s the as expected political kerfuffle. Democrats and Republicans can’t come to an agreement. And now, they’re on recess until September 8th (after Labor Day weekend). Although, Congress leaders have said they would call them back to Washington if a compromise bill appeared for approval before then. But that doesn’t sound too likely.
Digging into the details of both proposals, the second stimulus check doesn’t seem to be what’s caused the gridlock. So, I’m optimistic those will come through in the updated proposals. Although, only time will tell and it might take a month or two to be hashed out.
Stay tuned and invest wisely in the meantime.