Written by CYP Steering Committee member, Carleigh Hoy, Senior Tax Associate with Dixon Hughes Goodman LLP
This past Thursday, April 29th, Clay Thornton, a financial advisor for Dixon Hughes Goodman LLP, gave a lively yet conversational presentation about what to consider when taking the first step in the world of investing. He discussed the different vehicles in which you can invest your money and how to line up your personal goals and financial situation with your investing goals. Of course, we could not have kicked off a discussion about stocks without acknowledging the recent frenzy surrounding Gamestop’s stock that has peaked many young professionals’ interest in beginning their investing journey.
The first question of the night kicked us off, amusingly about the title of the event itself: “Is Gamestonk a misspelling?” After a couple chuckles from around the room, Clay explained that it’s one of the many unique terms commonly used by followers of a now famously popular Reddit thread named Wall Street Bets. It was this Reddit thread and some of its particularly famous followers, including Elon Musk of Tesla and David Portnoy of Barstool Sports, that sparked worldwide communication surrounding Gamestop’s gain potential, resulting in Gamestop’s stock price increasing almost 2,000% since the start of the year with 28% of Americans investing in Gamestop or another extremely shorted stock. The jump in price was the result of an epic short squeeze, which Clay emphatically pointed out can very well happen again.
However, Clay emphasized that he does not recommend relying on just one stock, whether it’s Gamestop or Microsoft. He pulled up Microsoft’s and Boeing’s stock prices since they went public to prove that neither one stock nor one industry is a reliable, foolproof way to have success in the market. Aside from a jump at the start of the year 2000 due to the Y2K scare, Microsoft’s stock had little to no activity and stayed relatively flat until recent years. If you had purchased stock when Microsoft first went public, you would have had to wait 30 years to be able to sell at a nice gain. Meanwhile, Boeing’s upward trend increased a bit quicker than Microsoft’s and had hit an all time high in 2019, but in just two months impacts from the coronavirus in 2020 depleted the stock’s price from $341 to $125.
Clay pointed out that in the same way the world and Boeing were surprised by the novel coronavirus, there is just no way to plan around the market’s volatility or even understand it. A young professional in the audience had asked earlier why hotel stock prices are skyrocketing while other stocks remain down or flat, and Clay admitted he could not provide an explanation and it’s very common for stock volatility to not have a direct reason. In order to mitigate your risk on your investments due to this volatility, he suggests buying into mutual funds or ETFs which consist of many different stocks and industries that keep your investment diversified.
While you want to be diversified to mitigate your risk, Clay suggests that as a young professional you can feel more comfortable having some risk and investing in higher risk funds since it’s expected that you have many years until you will need to sell your investment. Many successful 401Ks start out with high risk and decrease their risk as time goes on since you are getting closer to the age of retirement when you will count on funds being available from your investment. However, only you can determine your own risk tolerance and what you are comfortable with potentially losing. Before investing, you will want to separate your discretionary funds from your non-discretionary funds, which are needed for items such as rent and food within the next six months. You will only want to invest only your discretionary funds since there is always a degree of risk with investing.
Based on the high audience participation and laughs throughout the presentation, I know I speak for all young professionals who were able to attend that we appreciate all of Clay’s insights and ability to make the stock market and world of investing a bit more approachable!