There’s been a lot of recent interest in volatile meme stocks, which can be confusing for new investors lacking financial literacy. Anthony Okolie speaks with Nugwa Haruna, Client Education Instructor, TD Direct Investing, about how to fight FOMO with investment knowledge.
Well, joining us today is Nugwa Haruna-- she's a client education instructor at TD Direct Investing-- to talk about how to fight FOMO with knowledge. So Nugwa, what's the first thing you should do before starting to invest in financial markets?
- The first thing you want to do before starting to invest in financial markets would be map out a plan. This simply means plotting out what your goals are. What are you saving for? So are you saving for retirement? Are you saving for a major purchase?
The next question you want to ask yourself is, what is my time horizon, or when am I going to need these funds? Am I going to need my funds in a year, in five years, in 30 years?
The final thing you want to ask yourself is, how much risk am I willing and/or able to take on? So am I able to hold a position through a market correction until the markets recover? Or am I more interested in short-term trading-- so buying when prices are low and selling when prices are high. These are some questions you want to ask yourself before deciding on the kind of investment to buy.
- OK. So what are some common mistakes that people make when investing for the first time?
- Mistakes made by new investors would tie back to my first point-- not having a plan. Another common mistake would be herd behavior. So what is the crowd doing?
This was a huge driver in the meme stock frenzy that we saw earlier this year. And this is when an investor makes investment decisions not based off of their own analysis but based off of what the majority of other investors are doing. Now, this can lead to an unexplained rally, or the increase in the popularity of a stock, or in panic selling.
The final mistake I'd like to talk about would be trying to time the markets. So while investors are sitting out for the best price in the future, they could potentially be missing out on returns today.
- OK. So give us some examples of that last one.
- Investor who is waiting for the price of a stock to drop before buying that stock could be missing out on earning dividends today. Or an investor who's waiting for more favorable interest rates before purchasing fixed income products could be missing out on earning interest payments today. It's also important for investors to realize that the price of that stock may never drop to the level they're anticipating and interest rates may never increase in the economy.
- OK. Big question. What's the best way to overcome FOMO, or Fear Of Missing Out?
- Research and education. It can be very exciting to invest. But this doesn't come without risks.
So while there's no guarantee when it comes to investing, an investor is able to gain confidence by doing research on the company they're looking to invest in, so for instance, by looking at things like the fundamentals of the company. So what is the cash flow? What are the earnings of the company? And this will make the distinction between the fear of missing out and financial literacy.
So at TD, for instance, we have the analyst center, where investors are able to access analyst recommendations as well as reports on historical pricing of the stock, how the company has performed compared to its peers, and how the industry as a whole has performed. We also have the largest client education library in Canada, as well as live masterclasses that can help investors gain confidence.
- And of course, October is direct investments investor education month, with a focus on millennial investors. And Nugwa, what can attendees expect to hear this week?
NUGWA HARUNA: October 21, our guest speaker, Liz Enriquez, a personal finance educator, will be talking to us about overcoming FOMO, or the Fear Of Missing Out, as a millennial investor. So she'll take a look at what new investors can do to avoid making ill-informed decisions when it comes to investing, as well as some best practices that will help take out emotions when it comes to investing. We're also having live masterclasses this week that will touch on research and trading on TD platforms. To find out more about this, investors are able to check out our calendar of events at td.com/iem for more information.
- Nugwa, thank you very much for joining us.
- Thanks for having me, Tony.