Playing the Stock Market

Welcome to all the new readers from Smart Spending!

I learned yesterday that a few months back, one of my co-workers, who seems to be a fan of “get rich quick” schemes (none of which have ever worked for him, of course) decided to start playing the stock market.  He took $3000 out of his savings account and opened an investing account.  Apparently, he invested heavily in Fannie Mae and Freddie Mac.  Whoops.

From what I hear, he hasn’t quite lost all of his $3000, but he’s lost a large chunk.

Now, for some people, losing $3000 might not be a big deal.  But it was absolutely a huge deal for this guy.  He has a wife and two young children.  I’m not sure if his wife works or not, but if so, it’s part-time and she’s not bringing in a lot of money.  Though they would like to buy a home, they currently rent because they can’t afford a down payment.  He has mentioned his sizeable student loan debt and his credit card debt as well.  Now, I’m no expert, but this doesn’t seem like a person who should be taking his savings and putting it into the stock market in hopes of making a serious profit.

I admit – I’m very risk averse when it comes to my money.  To me, the stock market seems a lot like gambling.  I like mutual funds, and I do own a few stocks, but that’s more for fun than anything else.

I think this co-worker was swayed by another co-worker who admits that he makes more day trading than he does at his job (of course, we work for the government, so perhaps that’s not saying much).  It’s easy to hear a stat like that and think “Hey, I should get in on this too.”  Day trading co-worker, however, has also lost a lot of money at times and has been playing the stock market for a number of years.  He’s got a lot of experience and knowledge and has gotten good at predicting trends.  Of course, it’s always a gamble, but at least he’s making educated gambles.

There are a lot of people looking for an easy way to get rich.  I think we all dream of an easy way to get rich – how wonderful it would be to take a few easy steps, make our millions, and not have to worry about money for the rest of our lives?

Unfortunately, it seems to be the people who really can’t afford to participate in these sort of plans that are the most likely to try and they end up losing money they can’t afford to lose.

I’m not sure what my co-worker’s financial situation is at this point.  I know he’s very frustrated by the market, and I also heard that he was considering putting more money in.  While buying low and selling high is clearly the best investment strategy, sometimes you just have to cut your losses and run.

Megan Smith

Megan is a 40-something government employee in the Washington, DC area. She got interested in Personal Finance when she got out of college and realized that her paycheck wasn’t going to go as far as she had hoped. Since starting this blog, she has managed to buy a house and make a solid start on her retirement goals, and hopes to help others do the same. Here is her story:

In 2007, I was a gainfully employed 20-something with no debt but not a lot of knowledge about personal finance.  It was a co-worker’s comment about Roth IRAs that sent me to the internet, searching for information.  It was then that I realized that I really didn’t know a whole lot about personal finance and that my current financial situation was due a lot to inherent frugal tendencies, generous family members, a fear of debt, and good luck.  While that was working for me, clearly I needed a better plan.

While I had no debt, I was also pretty much living paycheck to paycheck and not worrying about going over budget (I say this as if I had a real budget) because I had an emergency fund set aside to cover any overages.

Except that’s not what an emergency fund is for.

So I did a lot of research, read a lot of blogs, and decided that I needed a plan.  I needed to budget.  I needed to know what I was spending my money on.  I needed to prepare for the future.

I decided to create a blog not only to make myself accountable to others but also to share the knowledge that I gained along the way.  I’ve learned so much from my fellow bloggers, and I hope that my readers can find something useful in what I have to share as well.