You Lost Money on GameStop, Now What?

So, we need to talk...you lost money on GameStop. Now what?

For some of you this might have been the first time you ever put money into the stock market. You saw some amazing quick returns, then all of a sudden it came crashing down. So now what? Are you just going to go back to living your life as you did before and ignore your need to start thinking about your retirement? Or are you going to start doing things differently and choose an investment strategy that is proven to get you wealthy over time?

As a financial analyst, I have spent many years learning all the ins and outs of finance and I wanted to show you a different side of investing. So in this article, I will be discussing 4 lessons learned that will help you get back on track.

You see most people who get rich in the stock market don't put all their money into a single stock and hope to short squeeze billion-dollar hedge funds. That sounds more like gambling because you have absolutely no idea what the outcome is going to be. The key to investing is making smart long-term decisions that have proven to generate consistent returns and allow you to retire rich. So here are my four lessons learned.

Lesson #1 Diversification

Instead of choosing single stocks to buy and sell, most people who become wealthy in the stock market do so through index funds. An index fund is simply a basket of companies that mirror a market index.

The most commonly referenced index fund is the S&P 500 index. This index fund closely matches the performance of all the top 500 companies in the US. So, if you invest into an S&P 500 index fund, you are effectively investing money into all 500 of those companies.

Therefore, for example, if 20 of the companies in the S&P 500 have a terrible year and the remaining other 480 companies perform well, you will not effectively lose money. Being diversified in an index fund means that you don't have to choose the winners and losers, you simply buy into the index and hold for the long-term.

There are index funds for almost anything. Some of the most common indexes are based on:

• Company size: these are funds that are called small-cap, mid-cap, and large-cap index. These are all based on the size of the company, small, medium, or large.
• Industry: these are funds that focus on industries such as technology, healthcare, consumer goods, etc.
• Asset type: these are funds that focus on different types of assets such as bonds, commodities, real estate, etc.
• Geography: these are funds that track companies in different countries, so there is a US index, a European index, an Asian index, etc.

The list continues on for a while, but the point is that it's always safer to put your money into an index so that you are diversified.

Lesson #2 Slow and Steady Wins

Going back to the GameStop example, some people saw returns upwards of 500% or more, until the crash. Returns like this are very rare and you should not be expecting this from any of your future investments.

The average return on the stock market over the last 100 years has been about 8%. Now 8% doesn't sounds like a lot, but it has allowed many people to retire wealthy through consistent investing over 30-40 years.

In this example below, if you invest $500 a month for 40 years earning 8%, you will end up with $1.6M. Your total contributions over those 40 years would equal $240K but your total interest would equal close to $1.4M. That's the power of 8% compounding interest.

Check out the link to the calculator and see how much you can expect to retire with.

Lesson #3 Don't chase the hottest stock tip

If I have convinced you so far that index funds are your best option to grow your money, then you will not even be swayed by the hottest stock tip you read about on reddit or that your friend tells you about. Consistently investing money into index funds will allow you to retire with a lot of money.

This also includes trying to time the market by buying low and selling high. You will never be able to consistently time the market and you really shouldn't even think about selling until you are nearing retirement age which is when you should consider swapping out stocks for bonds. But until then, you should buy index funds and hold for the long-term.

In 2008, Warren Buffet challenged the hedge fund industry to a bet. The bet was that an index fund could outperform actively managed hedge funds over a period of 10 years. And guess who won. That's right, the S&P 500 index fund outperformed the hedge funds with a cumulative return of 85.4% versus the average hedge fund return of 22%.

So, there is proof that you are better off putting your money into an index fund because if a hedge fund can't beat the index, what are the chances that you will be able to?

Lesson #4 Invest time into learning more about personal finance and investing

So, if you have stumbled on this video because you are looking to learn more about personal finance and investing, then that is great. There are tons of great resources available on YouTube including my channel, which you should definitely subscribe to.

Unfortunately, personal finance is not taught in schools, so most people lack the basic understanding and go throughout their lives blindly hoping that they will one day have enough money to retire. The more you can learn about personal finance, the better your chances will be of being able to retire with a lot of money. So don't put it off; start right now and make it a priority to start learning. Your future will depend on it.

I recommend reading these books:

• I Will Teach You To Be Rich by Ramit Sethi
• The Boglehead's Guide to Investing by Tyler Larimore and others
• Your Money or Your Life by Vicki Robin
• Quit Like a Millionaire by Kristy Shen

*Disclaimer: I am not a financial advisor. The ideas presented in my articles and videos are for entertainment purposes and not to be taken as financial advice.