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Everyday investors turn day traders

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Betterment’s survey of 1,500 investors was prompted by the ludicrous rise and fall of memestocks like GameStop and AMC earlier this year. While some people became millionaires almost overnight, others who bought and sold at the wrong time suffered heavy losses.

Yet a solid half of the survey respondents say they’re taking part in day trading — buying and selling stocks or other assets within a single day in search of quick wins. It’s a strategy so risky that cautious investors like Warren Buffett equate the practice to gambling.

“The gambling impulse is very strong in people worldwide and occasionally it gets an enormous shove," Buffett said earlier this year at the annual meeting of his company Berkshire Hathaway.

“It creates its own reality for a while, and nobody tells you when the clock is going to strike 12 and it all turns to pumpkins and mice.”

And although the survey found that 43% of investors were trading this way at least partly for entertainment value — numerous hobbies were on hiatus during the worst of the pandemic — the high-stakes fun isn’t stopping any time soon.

Well over half (58%) say they’ll keep up with day trading even after all COVID-19 restrictions are lifted.

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How to get yourself a piece of the action

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If you’re still eager to try your hand at day trading, be sure to do so with your eyes open. Even skill and experience are no guarantee of success.

“We have often compared day trading to going to Vegas — have a great time, enjoy yourself, but be prepared to come back home with fewer dollars in your wallet and a hangover,” Betterment writes in its survey report.

With that in mind, consider starting at the penny slots instead of the VIP blackjack table. Use an app that offers fractional investing — that way you can buy small slices of expensive stocks like Apple or Amazon rather than full shares for hundreds or thousands of dollars a pop.

What to do if you’re not interested in day trading

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Given the risks involved, day trading is not the ideal strategy for every investor. Buffett, for example, jokes that his favorite holding period is “forever,” and he only buys into companies he understands and sees values in.

New investors will benefit most from spreading out their bets through diversification. These days, robots can do all the hard work for you, tailoring a portfolio to your tolerance for risk.

“For those who want to avoid the FOMO [fear of missing out] of the next big memestock, but aren’t sure of the best way to get started — a simple alternative is investing in a well diversified portfolio,” Betterment writes.

“That way, whenever someone asks if you own the hottest thing, you can say ‘yes,’ regardless of what it is.”

Even if you don’t have much to spend, some apps allow you to invest with your “spare change,” making it possible to turn pennies into a diversified portfolio over time.

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How to boost your investments once stim checks are long gone

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fizkes / Shutterstock

With Congress moving on to other priorities, the chances of getting a fourth stimulus check are pretty slim.

But if you’re eager to give your investments an extra boost, consider one of the following strategies to free up some cash:

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The content provided on MoneyWise is information to help users become financially literate. It is neither tax nor legal advice, is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Tax, investment and all other decisions should be made, as appropriate, only with guidance from a qualified professional. We make no representation or warranty of any kind, either express or implied, with respect to the data provided, the timeliness thereof, the results to be obtained by the use thereof or any other matter.