If you're facing foreclosure, and only have a few thousand dollars to your name, is gambling that money by trading stocks or investing in cryptocurrencies like Bitcoin your ticket to big earnings and saving your home? No. There are smarter ways to invest and avoid foreclosure.
There is a huge industry that sells the dream that anyone can make a bunch of money speculating in stocks and securities. They make it seem like all the cool people are doing it, and they're getting rich. Don't you want to be cool and rich?
Discount brokerages like Scottrade, TD Ameritrade, Etrade, and Robinhood, as well companies providing information, like CNBC and countless newsletters and websites, all market the idea that it's possible for an average Joe with no experience to earn more money trading stocks than with other investments.
Making It Big
Technically, they are right. It is possible to make more money trading stocks than with some other less risky investments. For example, if you had purchased $2,000 of Microsoft stock when it first became publicly available in the 80s and sold it today, it would be worth $1.46 million!
Countless others, such as Google, Facebook, Apple, and Netflix, also had meteoric rises. We'd all like to find the next big thing, buy it when it's cheap, and sell it for a massive profit so we can retire early and spend the rest of our days on a beach sipping rum out of a coconut. That's every speculator's dream.
And stocks aren't the only way to make big money. Recently cryptocurrencies like Bitcoin have exploded in value. Apparently, if you bought $100 worth of Bitcoin in 2010, it would now be worth $75 million. Not too shabby.
Big Risks In Speculating
However, finding the next Microsoft, Google, or Bitcoin and buying and selling it at the exact right time to make a fortune is a moonshot equivalent to winning the lottery.
You could also lose all of your money or make substantially less than with more conservative investments.
The real question is, is it worth the risk to speculate? Many financial experts say it's not. And if you need to save your home from foreclosure, speculating is especially dangerous.
Analysis has shown that most people would make more money by investing in an index fund on a regular schedule and reinvesting the dividends than by actively trading stocks. An index fund is a portfolio of stocks that match a stock index such as the Dow Jones Industrials or S&P 500. The fund owns shares of the companies in the index and investors buy shares in the fund without having to buy its stocks individually.
The indexes, or market averages, are what all other investments are measured against. If you're not beating them, why are you going to the trouble of trading?
Even multibillion-dollar hedge funds, which have the smartest people in the world working for them, have a hard time consistently beating the performance of the humble index fund. Individual investors tend to do even worse.
Everyone's A Genius When The Market Is Going Up
Stock picking is very hard even for the pros, yet many amateurs who do it seem to make money. How could this be? Since the recovery from the Great Recession started, stocks have done incredibly well. A monkey could throw a dart at a list of stocks and pick winners when there is a bull market.
So, people who make money by picking stocks may just be lucky to be alive in a bull market. And making money doesn't mean they're beating the indexes, which is the whole point.
And cryptocurrencies like Bitcoin and Ethereum can be even more volatile than stocks, going up and down in value very quickly. It's a big gamble.
If you want to try speculating in stocks or cryptocurrencies, do it with money you can afford to lose after you have adequate savings. Most people don't have nearly enough saved and should be putting money in a 401k or IRA, not stock picking.
Loan Modifications, The Realistic Solution To Saving Your Home
Following a default, many homeowner's only hope of saving their home from foreclosure is to get a loan modification that reinstates their mortgage with different terms. A loan can be stretched out over 40 years with a lower interest rate to make the payment more affordable. Sometimes the principal balance is even reduced. Unfortunately, applying for a loan modification is difficult, and many people are denied.
Working with an attorney, who can defend you from foreclosure and negotiate the best loan modification, can be the difference between success and failure. A reputable attorney may be more affordable than you think and can help you get all the time in your home that you're entitled to.
Who knows, if you can avoid foreclosure with a loan modification, soon you may have enough money saved to do a little speculating on the next big stock or cryptocurrency. Maybe you'll get lucky and end up on that beach drinking cocktails out of a coconut.
Images courtesy of Sira Anamwong at FreeDigitalPhotos.net