For some service members, the action they see is not on the battlefield but in the marketplace. While some people have made a lot of money through high-risk stock trading and other short-term high-risk investments, others worry that the practice may not end well.
A recent Wall Street Journal article reported that military bases and barracks “are fertile ground for investment mania” because they are “filled with young people—many of whom are naturally born risk-takers—with time to kill, disposable income and few taboos” (1).
U.S. military pay levels are part of the public record, so there is also a culture of financial disclosure in the industry (2). Additionally, with high job security and guaranteed pensions, some may feel they can afford to take investment risks.
Combined with the camaraderie among the troops, which lends itself to sharing investment ideas and trading wins, we’re seeing a new wave of “Top Gun traders” flocking to high-risk bets like tech stocks, cryptocurrencies and meme stocks.
Take Coast Guard Petty Officer 3rd Class Bryson Saunders, who was an avid day trader and later a financial influencer before taking on a day job in the military. He told the Wall Street Journal that he made money on Tesla stock but also lost more than $10,000 in a single day of trading in cryptocurrency-related assets.
But many young service members have never experienced a prolonged bear market. So when the inevitable big correction comes, “they’re going to be hurt a little bit,” Brian O’Neill, a financial adviser and Air Force veteran, told the Wall Street Journal(1).
This could derail their long-term retirement plans.
This isn’t the first time we’ve seen a “Top Gun” trader. According to the Wall Street Journal, cryptocurrencies spread like wildfire among the military in the early 2020s, fueling a surge in cryptocurrency prices. This cryptocurrency craze, along with meme stocks, has many troops hooked on investing.
But the rise of investing apps that make trading easy has reinforced this investing culture. Some highly regulated military personnel have fallen into the same dangerous behavior that plagues retail investors. Accessibility, hype, and even peer pressure can overwhelm discipline and derail financial plans.
Most investments are in single stocks and cryptocurrencies, with the focus on short-term gains. While there are some success stories, such as anecdotes of military personnel spending tens of thousands on Rolex watches and hundreds of thousands on Porsches, others have also suffered huge losses (1).
Multiple studies have shown that day traders rarely make money in the long term after fees are taken into account (3).
Trader and money manager James “Rev Shark” DePorre believes that “the biggest reason most day traders fail is that they are not actually traders; they are gamblers” and they have a gambling mentality (4).
These investors typically only put their money into one or two trades, which are very risky. When losses occur, they often take greater risks in an attempt to recoup their losses. They also rarely adjust their trading style in response to changing market conditions.
Even switching from day trading to active trading that is still short term but not lightning fast is unlikely to help much. While it may not come with a gambling mentality, it’s still not optimal.
Read more: The average American net worth is a surprising $620,654. But that makes almost no sense. Here are the numbers that matter (and how to make them soar)
There are some lessons we can learn from the military’s high-risk investing culture. Military members can use this discipline and passion to build wealth early, but avoid concentrated bets, unresearched speculation, and FOMO-driven trading.
To build and preserve wealth, many financial advisors recommend staying invested rather than trying to time the market.
According to Morningstar Research(5), opportunity cost and unreliable trade signals are the main reasons why market timing doesn’t work. When traders stay away from the market, they give up the long-term returns of the stock market and receive little to no cash or very low returns from bonds. Historically, this could cost them about half a percentage point per month, according to Morningstar(5).
Research shows that many of the market’s best single days occur during extended bear markets when prices are falling. Trying to time the market risks missing these key opportunities, which can significantly reduce long-term returns.
For example, if you invested $10,000 in the S&P 500 Index 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 but missed only the best 10 days (7 of which occurred during a bear market), you would gain $29,708, less than half that (6).
A qualified advisor can help you develop a financial plan, which includes identifying and quantifying your long-term goals and then determining how much and how often you need to save.
To further reduce risk, diversify across asset classes, within asset classes, and in a variety of investment styles, including 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 and quick” mentality. But balancing risk with long-term goals means your Porsche can become a symbol of wealth, rather than just a reminder of a great deal made years ago.
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Wall Street Journal (1); Defense Finance and Accounting Services (2); Quantitative Strategies (3); Street (4); Morningstar (5); Visual Capital (6)
This article provides information only and should not be considered advice. It is provided without any warranty of any kind.
