For some service members, the action they’re seeing isn’t on the battlefield — it’s in the markets. While some are making big money through high-risk stock trading and other short-term, risky investments, others worry that this approach might not end well.
A recent Wall Street Journal article reports that military bases and barracks “are fertile ground for investing frenzies,” since they’re “full of young people — many already natural risk-takers — with time to kill, disposable income and few taboos” (1).
Pay levels for U.S. military members are part of the public record, so there’s also a culture of openness about finances in the sector (2). Plus, with high job security and guaranteed pensions, some may feel they can afford to take investment risks.
Add to that the camaraderie among troops, which is conducive to sharing investment ideas and trading victories, and we’re seeing a new wave of “Top Gun traders” piling into high-risk bets such as tech stocks, cryptocurrency, and meme stocks.
Take Coast Guard Petty Officer Third Class Bryson Saunders, who was an avid day trader before becoming a finance influencer on top of his military day job. He made money on Tesla stocks — but also once lost more than $10,000 in a single day trading crypto-related assets, he told the Journal.
But many young service members have never experienced a prolonged bear market. So, when the inevitable big correction comes, “They’re in for some hurt,” Brian O’Neill, a financial advisor and Air Force veteran, told the Journal (1).
And that could sabotage their long-term retirement plans.
This isn’t the first time we’ve seen “Top Gun” traders. Cryptocurrencies spread through the military like wildfire in the early 2020s, helping to drive a surge in crypto prices, according to the Journal. This crypto-mania, along with meme stocks, got many in the troops hooked on investing.
But the rise of investment apps that make it easy to trade has supercharged this investment culture. And some highly regimented military personnel are falling into the same risky behaviors that plague retail traders. Accessibility, hype and even peer pressure can overwhelm discipline and derail financial plans.
Much of this investing is in single stocks and cryptocurrencies, with an emphasis on short-term gains. While there are some success stories, evidenced by anecdotes of service members spending tens of thousands on Rolex watches and hundreds of thousands on Porsches, others have also suffered large losses (1).
Multiple studies show that, after accounting for fees, day traders rarely make money in the long term (3).
Trader and money manager James “Rev Shark” DePorre argues that “The biggest reason most day traders fail is that they really aren’t traders; they are gamblers,” and they have a gambling mindset (4).
These investors typically place their capital on just one or two trades, which carry high risk. When losses occur, they often take on even more risk in an attempt to recover. They also rarely adjust their trading style to changing market conditions.
Even moving from day trading to the still short-term, but not lightning-fast active trading is unlikely to help much. While it may not come with a gambling mindset, it’s still sub-optimal.
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There are a few lessons to be learned from the military’s high-risk investing culture. Service members could channel that discipline and enthusiasm into building wealth early, but leave behind the concentrated bets, unresearched speculation and FOMO-driven trades.
To build and preserve wealth, many financial advisors recommend staying invested — not trying to time the market.
Opportunity cost and unreliable trade signals are the main reasons market timing doesn’t work, according to Morningstar research (5). When traders stay out of the market, they forgo the stock market’s long-term returns for little to nothing in cash or very low returns in bonds. Historically, according to Morningstar, this could cost them about half a percentage point per month (5).
Research shows that many of the best single days in the market happen during long-term bear markets when prices are down. Attempting to time the market risks missing these key occasions, which can significantly reduce long-term returns.
For example, if you invested $10,000 in the S&P 500 in January 2003 and stayed in the market until December 2022, your investment would have grown to $64,844. Alternatively, if you tried timing the market and missed only the best 10 days — seven of which occurred during bear markets — you would have $29,708, which is less than half (6).
A qualified advisor could help you develop a financial plan that includes identifying and quantifying your long-term goals and then determining how much you need to save and how often.
To further reduce your risk, diversify your investments across asset classes, within asset classes and with multiple investment styles such as growth and value. You can also diversify stocks by sector, industry and country.
For some, it can be hard to resist the adrenaline-fueled “win big fast” mentality. But balancing risk with long-term goals means your Porsche can be a symbol of wealth — not just a reminder of that one great trade years ago.
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Wall Street Journal (1); Defense Finance and Accounting Service (2); Quantified Strategies (3); The Street (4); Morningstar (5); Visual Capitalilst (6)
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
