Non-fungible tokens, meme stocks, crypto, there’s no shortage of places to put your money these days. FOMO is real, and it’s difficult for even the most disciplined investor to sit on the sidelines when it feels like everyone else is making money. If you’ve got the trading itch here are a few tips on how you can scratch it without jeopardizing your financial future.
Buy a Specialized Mutual Fund or ETF
Just like you do in your diversified portfolio, you can buy specialized ETFs and mutual funds in various niche areas of the market. Crypto, cloud computing, cannabis, whatever you’re interested there’s probably an ETF or mutual fund out there you can buy. A benefit to investing this way is that you’ll hold many companies at once by making just one purchase. This doesn’t eliminate all volatility, especially since trading volume on these types of investments can be extremely low, but if you want to throw some cash at something that isn’t easily traded, this can be an easier entry point than buying direct.
Buy a Small Portion
You’ve probably heard some of the stories of the billionaires who invested in Bitcoin in its early days. There are 7.8 billion people on earth and only 2,095 billionaires, making your chances of becoming one about 0.000027%. So not impossible, but not probable either.
Go ahead and participate anyway but keep your investment small. Think about it this way, if your investment becomes worthless what amount are you comfortable with losing? And more importantly, what amount can you afford to lose? Pretend you’re going to the casino with set amount of cash, once it’s gone be done and walk away. If you come out on top, great. If not, no big deal.
Use a Virtual Trading App
Okay, this one isn’t as fun as using real money, but it also doesn’t come with the same risks. Using hypothetical dollars in a virtual trading app can be a great way to get your feet wet without risking any of your own cash.
Using a virtual trading platform, or “paper trading” as it’s called, can not only teach you about the mechanics of trading but many of these platforms offer general investment education as well, giving you a baseline of understanding before you start putting your own dollars on the line.
Check Your Other Boxes First
Okay I wouldn’t be a financial planner if I didn’t slip this in here at the end.
If you’re not saving in your other accounts and working towards your long-term goals don’t even think about playing around with these types of investments, unless of course you go the paper trading route.
If you decide that you want the real deal and want to invest real dollars, make sure you’re not leaving money on the table with your retirement plan at work. Don’t forget to contribute to the kids’ 529s. Make sure your emergency fund is padded. Pay off high interest debt. There are a lot of boxes you should be checking off before investing in these niche areas of the market. Make sure you’re doing all of them.
I will always be a proponent of the “boring” investments because they work. But I also understand that watching a broadly diversified portfolio grow over a few decades can be as exciting as watching paint dry. If you need to scratch your trading itch you don’t need my permission, but be smart with your approach, and if you lose it all make sure you won’t derail your finances by doing so.