GameStop Controversy Reveals Sound Value of Financial Planning

The recent GameStop trading frenzy delivers a strong message to consumers about the risks of investing without a sound financial plan.

GameStop, the company dominating the financial headlines this week, is a retailer that has struggled in recent years. The surge of its stock price—triggered by investors on Reddit—was followed by a drop in price, hurting many people who were playing a game with real-life consequences.

The lesson here is that investing is a piece of any well-considered financial plan. Spending less today and investing for tomorrow allows one to spend more tomorrow. We delay gratification because we have plans in the future that we want to fund — like education, a vacation or retirement.

The two key components of a planned investment approach are time and compound interest. Compound interest is how long it takes your money to grow from $1 to $2. Historically, with a well-diversified portfolio, that will probably take anywhere from seven to twelve years. The more time you have, the more your money compounds. If it takes ten years for your money to double, in forty years your $1 would be worth $16! That’s why starting early makes a difference.

If it takes just forty minutes for your money to double, you are gambling rather than investing. While gambling can be temporarily exciting, it often ends badly. A sound financial plan needs to be based on events that are likely to happen over time. Winning the lottery, finding the golden ticket, or buying a stock that goes up 1,700 percent in a few days, I dare say, would not qualify.

Rather than get enamored with get-rich-quick schemes, it makes far more sense to get rich slowly by developing a comprehensive financial plan with a CFP® professional. This process will help individuals reach their financial goals based upon an understanding of what you have and what you owe (your balance sheet), what you spend (your cash flow), where you want your money to go (your charitable and estate plan), and how all of these things blend together to help you create your financial future. It’s easy to get started on a financial plan; visit letsmakeaplan.org and find a CFP® professional near you.

You will be far happier if you don’t play games with your money or future.