For some soldiers, the action they see is not on the battlefield, but in the markets. While some have made big money through high-risk stock trading and other short-term risky investments, others worry that this approach will not work out well.
A recent Wall Street Journal article reports that military bases and barracks are “fertile ground for investment sprees” because they are “full of young people with time to kill, disposable income, and few taboos—many of whom are already natural risk takers” (1).
Pay levels for U.S. military members are part of the public record, so there is a culture of openness about finances within the industry (2). Additionally, due to high job security and guaranteed pensions, some may feel they can afford investment risks.
Add to this the camaraderie between associations that help share investment ideas and trading victories, and we’re seeing a new wave of “Top Gun traders” piling into high-risk bets like tech stocks, cryptocurrency, and meme stocks.
Take Coast Guard Petty Officer Third Class Bryson Saunders, who was an avid day trader before becoming a financial influencer alongside his military day job. He made money trading Tesla stock but also lost more than $10,000 in a single day trading crypto-related assets, he told the Journal.
But many young soldiers have never experienced a prolonged bear market. So when the inevitable big correction comes, “They’re going to take a little bit of a hit,” financial advisor and Air Force veteran Brian O’Neill told the Journal (1).
This could sabotage their long-term retirement plans.
This isn’t the first time we’ve seen these “Top Gun” traders. Cryptocurrencies spread like wildfire in the military in the early 2020s, helping to boost crypto prices, according to the Journal. This crypto craze, along with meme stocks, has caused many in the fraternity to become addicted to investing.
However, the rise of investment apps that facilitate trading has strengthened this investment culture. And some highly disciplined military personnel are falling into the same risky behavior that plagues retail traders. Availability, exaggeration, and even peer pressure can subvert discipline and derail financial plans.
The bulk of these investments are in single stocks and cryptocurrencies, with a focus on short-term gains. While there have been some success stories, anecdotally evidenced by soldiers spending tens of thousands of dollars on Rolex watches and hundreds of thousands of dollars on Porsches, others have also suffered major losses (1).
Numerous studies show that day traders rarely make money in the long run after accounting for fees (3).
Trader and money manager James “Rev Shark” DePorre says, “The biggest reason why most day traders fail is that they are gamblers, not traders,” and have a gambling mentality (4).
These investors usually invest their capital in one or two transactions that carry high risk. When losses occur, they often take more risks in an attempt to recover. They also rarely adjust their trading style to changing market conditions.
Even the transition from day trading to still short term, but not at lightning speed active trading It’s unlikely to be of much help. While it doesn’t come with a gambling mentality, it’s still sub-optimal.
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There are a few lessons to be learned from the military’s high-risk investment culture. Service members can channel this discipline and enthusiasm into building wealth early, but leave concentrated betting, unresearched speculation, and FOMO-driven trading behind.
To build and preserve wealth, many financial advisors recommend staying invested rather than trying to time the market.
Opportunity cost and unreliable trading signals are the main reasons market timing doesn’t work, according to Morningstar research (5). When traders stay out of the market, they give up the long-term returns of the stock market for little or nothing in cash or the very low returns of bonds. Historically, this could cost them around half a point per month, according to Morningstar (5).
Research shows that many of the market’s best days occur during long-term bear markets where prices decline. Trying to time the market runs the risk of missing these key events, which can significantly reduce long-term returns.
For example, if you had 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 to time the market and only missed the top 10 days (seven of which occurred in bear markets) you would have $29,708, which is less than half (6).
A qualified advisor can help you develop a financial plan that includes identifying and measuring your long-term goals and then determining how much and how often you need to save.
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 industry, sector and country.
For some, the adrenaline-fueled “win big” mentality can be hard to resist. But balancing risk with long-term goals means your Porsche can be a symbol of wealth, not just a reminder of a big trade from years ago.
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Wall Street Journal (1); Defense Finance and Accounting Service (2); Measured Strategies (3); Street (4); Morning star (5); Visual Capitalilst (6)
This article provides information only and should not be construed as advice. It is provided without any warranty.
