Market volatility in stocks such as GameStop, Nokia, AMC, and Blackberry has led many from Reddit and the internet community to invest in those stocks.
Students at Algonquin, however, may want to think twice before investing money into these stocks according to two Algonquin professors.
Alex Hadjisophocleous a part-time professor at Algonquin College in the business administration program who teaches introduction to personal finance and is the owner of Forest Financial, an Ottawa-based business, does not think it is so black and white.
“I think it’s a grey area here,” he said. “Some were forced to stop the trading because of the volatility and liquidity issues. For example, Robinhood had to raise $1-billion week and raised another $2.4-billion today to cover themselves, because they need to hold collateral.”
When it comes to halting trades on the free market if done for risk management purposes, Hadjisophocleous does not believe that the brokerage apps are in the wrong as an event like this was unforeseen.
However, if it was done to protect those hedge fund owners who decided to short sell on those stocks, then it would affect an individual’s view on the free market.
This can make things tough for novice investors, explains Ross McShane, a professor in the business administration finance major diploma.
“They’re viewing the market like a casino,” said McShane. “They’re better off going across the bridge once everything is open. I think you have a lot of people who are jumping in right now and this is not going to end well for them. Often in my experience, this is what they need. They need to lose some money and feel the pain.” he said.
It is quite easy to get sucked into investing in certain stocks or jumping in on the herd mentality solely based on the fear of missing out.
When it comes to students, Hadjisophocleous believes that they are better served thinking about their long-term financial futures.
“If you want to invest think long term, think about your goals, think about your risk tolerance,” he said. “Are you able to see your portfolio drop 20 per cent in a year – in six months?”
Hadjisophocleous believes that young potential investors should not let the events over the past week influence their decision to start investing. If they plan on it, is best to stay invested in something like an index fund or Exchange-Traded Fund (ETF) within their risk tolerance. It is also important to stay in your discipline.
Hadjisophocleous adds that saving money, creating a budget, and seeking financial help are some of the ways students can manage their finances for the long-term.
“You’re still young,” he said. “If you’re saving for something like a house then I would avoid the market. If you decide to invest, diversify your portfolio not only across different companies but also different sectors and regions of the world. This can help reduce your portfolio’s risk or volatility.”