Get Rich or Go Broke Trying
The wild investment strategies found on social media are causing people to take extraordinary risks.
Financial stability from working hard isn't happening, pushing people towards risky investment ideas.
Without guidance from knowledgeable people who have created wealth, young adults seeking to create wealth for themselves are acting on shaky investment advice in hopes of big gains.
The Erik Townsend Story
After selling his software company at a fairly young age, Erik Townsend became a wealthy man. Townsend was informed by the people who worked on the acquisition that he should look to a major Wall Street firm to help him manage his newly acquired wealth. Not too long into his early retirement, Erik discovered that the professionals he entrusted his money to were losing it, and asking him to send them more. Erik did the smart thing, he took control of his money, and now he runs his own hedge fund. You can listen to Erik Townsend weekly on his podcast Macro Voices.
This isn't a Macro Voices plug, and I don't know Erik Townsend personally, but something about his story has always stuck with me. The funny thing about the Erik Townsend story, and funny is probably not the right word to use, but Erik, without the help of Wall Street made himself wealthy, and as soon as he became wealthy, he was then deemed worthy enough to be a client of a big Wall Street firm.
Erik’s story made me take note of the almost limitless choices of companies wanting to manage your wealth. I also noticed that there aren't too many companies offering to help you create wealth.
So How Do You Make It?
We all want the same thing. We're all looking for some form of success. We all want to find something that allows us to maximize our abilities. We all want to make a good, if not a great living. We want good health for ourselves and our families. We want our kids to have better opportunities than we did. And we want safety and security.
It's for this reason that I can't critique any Reddit investor, WallStBets loyalists, crypto enthusiasts, or their investment strategies. After all, they, like myself, are all going after financial comfort, safety, and security. And if people with the knowledge, expertise, or know-how aren't willing to explain it, then the Reddit investor, WallStBets loyalists, crypto enthusiasts, and anyone who finds themselves lost financially are left to take advice from anyone who will provide them with it.
A few weeks ago I came across the hilarious twitter account @TikTokInvestors. The feed is a collection of people young and old giving some questionable investment advice. The specific tweet that led me to the account was a video of a person planning to buy a $1.4 million home by putting down $290,000 on the home, and putting $450,000 into a DeFi protocol. The DeFi protocol at the time was offering a 19.55% APY. The young man's plan is to earn his monthly mortgage payment from the $450,000 he locks into the DeFi protocol. As you can imagine, there weren’t many people on Twitter tweeting about how smart this kid is, or how great his idea is. There was a lot of laughter and criticism, but no help. There was no one explaining to the young man a more financially sound way to make a good living or afford a $1.4 million home. So if no one is teaching you how to become wealthy, you have to figure it out yourself.
There's something to be said about the microwave society we live in. That someone sees a $1.4 million house today, and wants to get it today. I get that. And I understand there are people like Warren Buffett giving what I believe is the most sage advice, by telling people to just buy index funds. But thinking as someone in their late teens early 20s, Buffett is old, and I want to be rich now, or as close to now as possible. What should I do?
From my own experience, I became an E-Trade customer after they acquired the discount brokerage firm I initially signed up for. My account had a few hundred dollars in it when E-Trade completed the acquisition. For years, outside of a monthly account statement that E-Trade would mail me, I never received any correspondence from anyone at E-Trade. But The day my account broke six figures, someone from E-Trade called me, and continued to call me twice a week about account management services. The saying is true, build it, and they will come, with their hands out looking to charge you fees and commissions for their unsolicited advice.
Working Hard Isn’t Cutting It
In 2022, working hard isn’t cutting it. Working hard isn't preventing people from being priced out of neighborhoods they love. Did you know that on average, Americans spend nearly 20 years paying back student loans. That's 20 years of not being able to take another major leap as an adult, like buying a home. Despite what the politicians would have you believe, people are, and have been working hard, but they’re not seeing any rewards for their hard work. Rent prices are rising, investment banks are buying up housing communities making it harder for the average Joe or Jane to afford owning a home, inflation is killing the checking and savings accounts, and rising gas prices are making things tougher than they already were. People are working hard. The circumstances have left them with no other choice. But when you're working hard, and the future still looks dim, you're prone to take chances, which takes us to the markets, stocks, crypto, and others.
The GameStop ($GME) trade of 2021 was viewed harshly by old investors. It ruffled the feathers of the old guard to see that "dumb money" (their term, not mine) could get so much out of the markets in such a short time. It seemed that most of the attention during early 2021 went to the winners, losers, and bag holders associated with the GameStop trade, but the GameStop trade was an indictment on how sad the state of our economy is, especially for young people. Young investors saw an overhyped and overpriced stock as their best chance to make it financially.
And not every GameStop trader who won big ended up with Lambo money at the end of it all. For some Redditors who went in on the trade, the trade gave them enough money to payoff student loans, and provided them with a bit of breathing room financially. Imagine, 20 years of student loan payments being taken care of in a few days, thanks to GameStop and AMC ($AMC). Is Goldman Sachs, JP Morgan, Merrill, or Morgan Stanley providing that type of investment advice for the not-wealthy yet crowd?
Being broke sucks. Being a young adult and broke, and thinking about the future, but not seeing a path to financial stability sucks even more. When I was in my 20s, being broke, and starting at the bottom was a part of the journey. But there was a belief that in my 30s I would see more opportunities and gain better financial stability, and that my 40s would be better than my 30s, and so on. I don't think young people today have that feeling that everything is going to work out if they just keep working hard, which is why we're seeing people take crazy risks, chase crazy APYs, go all in on meme coins hoping they pop, and put their life savings into new cryptocurrency protocols hoping one takes off. This is being done because there aren't many institutions out there helping people create wealth, they only manage it once you’ve already made it.
The next time you see some wild and crazy investment strategy from someone, before you laugh or criticize, try offering some advice on how to do it better or safer. After all, the motivation behind the crazy investment strategy is to make it, just like you did.