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How to Invest Like You Shop for Gifts

Wednesday, December 15, 2021 02:47 PM | Neal Farmer
How to Invest Like You Shop for Gifts

'Tis the season for gift giving in many forms. People will get their stockings filled with little trinkets and candy along with big presents from those they love.

Of course this year will be extra special coming off last year’s holiday season where many anti-pandemic efforts limited people's travel and other activities. However, that recovery comes at a cost… literally.

Prices are higher now than they were a year ago which means whatever is left in that wallet following the season can be put towards next year's gifts immediately. Who knows how much $100 in Apple (AAPL) stock will be worth this time next year. Thus, if the money is going to be spent on gifts, maybe it should be diversified in the same way?

The Big Presents

Everyone can’t help but immediately look to the biggest and heaviest box under the tree when assessing gifts. Sure the smaller gifts are nice but that childlike urge to  tear open the biggest box right away just doesn’t seem to go away.

And after all, what’s more childlike than investing in Tesla (TSLA)?

Jokes aside, the big present is what many people focus on and can often be the best gift. With that comes immense responsibility though. If investors are going to place a lot of weight on one investment, then it better be a good investment. Investing in popular companies certainly has its place as there are many valid reasons why Tesla and Elon Musk are so loved by so many. But even if it's a company as large and powerful as Apple or Microsoft (MSFT), investors should take care to diversify that with other large companies in different sections of the economy.

Useful Presents vs Fun Presents

Big presents might be a particular company traders have a reason to believe in based on historical performance and current trends. While that shiny new Xbox is a pretty sweet gift to be excited about, those new socks and sweatpants start to be loved later in life. Children might not care much for socks from grandma but adults can’t get enough socks because somehow they never have enough socks. Nothing goes better with gaming than some comfy socks and sweats just like nothing goes better than AAPL than some simple index funds or General Motors (GM) stock.

Some good value stocks aren’t going to get Wall Street Bets traders excited at all but they are a necessary part to any diversified portfolio. Speaking of diversification, classic exchange traded funds (ETFs) are great ways to get returns on the market with built in diversification so traders don’t have to worry about a bad earnings report leading to their portfolio dropping 10% in one day. Useful presents like socks are essential while some more fun gifts are great in the moment but often don’t actually provide any use to the recipient long-term.

Stocking Stuffers

Speaking of fun gifts, while weird meme shirts on Etsy are essential in their own way but probably shouldn’t be making up a large portion of the budget. Getting gifts with mostly products from Etsy and Redbubble doesn’t sound like the best experience. Unless investors just want to have some fun in trading smaller positions more frequently  so  they can bet on GameStop’s (GME) next move or if Husky Coin is going to be the next dog themed crypto to pop, most should probably keep the meme trading to a minimum. It certainly has a place and if it's fun for the trader, then they shouldn’t stop unless they lose more money than they can afford to.

Apart from fun gifts though, stocking stuffers are great ways to round out gifts with some good candy, gift cards, and other, smaller presents. Just because a portfolio is mostly weighted in higher market cap stocks along with index funds, doesn’t mean there isn’t room left for some bets on smaller companies. Maybe it's a new initial public offering (IPO) or SPAC deal that has some strong potential. Could even be the newest electric vehicle company that’s all the rage such as Rivian (RIVN) or Nio Inc. (NIO).

Wrapping Up

People want a wide variety of gifts for the holidays and investors should similarly aspire to having a large collection of assets. Some can be fun and exciting with the promise, or at least hope, of big growth in the future. Meanwhile, any good portfolio usually contains some boring choices that have consistently gotten the job done and are positioned to continue doing so. Microsoft, GM, Rivian, and the S&P 500 SPDR (SPY) may not have much in common but together can combine to be something greater than the sum of their parts.

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