I’m Steering Clear of These 3 Popular Investments for the Same Reason

Investing isn’t something I like to do without putting a lot of thought into my decisions first. After all, like you, I work hard for my money, and the idea of throwing it away by making poor choices doesn’t sit right.

These days, there are a number of stocks on my personal watchlist. And I also happen to be a fan of exchange-traded funds, which let you own a whole bunch of stocks with a single buy.

But there are certain popular investments that I tend to stay away from:

Penny stocks
Meme stocks
Cryptocurrency

And my reasons for avoiding all three are actually pretty similar.

Why these investments don’t work for me

To be clear, penny stocks, meme stocks, and cryptocurrency are all different beasts. Penny stocks are those that trade for under $5 a share, while meme stocks are those that have gained notoriety — or popularity, depending on how you look at it — through social media platforms.

Meanwhile, cryptocurrency is a completely different investment than owning a stock. Rather than own a piece of a specific company, you’re buying digital currency with the hopes that its value will increase over time.

All of these investments make me jittery because in my mind, they’re all pretty speculative.

The companies behind penny stocks tend to be newer, less established businesses whose future is uncertain. And those companies generally aren’t subject to the same disclosure requirements as larger companies. That means penny stocks can be much harder to analyze.

Meme stocks, meanwhile, are stocks whose value tends to fluctuate more so based on publicity and social media interest than the moves the companies behind them make. Or, to put it another way, what you’ll pay for a meme stock on a given day may not be reflective of that company’s actual value. As such, the future value of meme stocks is pretty uncertain.

Finally, cryptocurrency is pretty speculative because we don’t know whether it will continue to gain value or not over the long haul. Whether cryptocurrency remains a viable investment will hinge largely on whether it becomes a widely accepted form of payments, and at this point, it’s too soon to know that.

Because penny stocks, meme stocks, and cryptocurrency are all so uncertain, I’m not comfortable buying them. In fact, none of these investments fit into my personal strategy.

My strategy is to buy stocks or assets that I feel confident will appreciate in value over time and hold them for many years. Or, as famed investor Warren Buffett puts it, “If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes.”

Now to be fair, it’s not that I’m not willing to own penny stocks, meme stocks, or cryptocurrency for 10 years. I’m just not confident that those investments will be worth more in 10 years than they are today. In fact, I have concerns that they’ll end up being worth less. And that’s why I’m opting to stay away from them.

Stick to your strategy

As an investor, it’s important to base your choices on logic, not what the people around you seem to be doing. You’ll read a lot about penny stocks, meme stocks, and cryptocurrency, but that doesn’t mean any of these are the right fit for your portfolio. Or, maybe they are — that’s your call.

But if you’re going to invest in them, make sure they align with the strategy you’ve set up for yourself. If they don’t, you may want to question why it is you’re attracted to any of these options in the first place.

10 stocks we like better than Walmart
When our award-winning analyst team has an investing tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

They just revealed what they believe are the ten best stocks for investors to buy right now… and Walmart wasn’t one of them! That’s right — they think these 10 stocks are even better buys.

See the 10 stocks

Stock Advisor returns as of 6/15/21

The Motley Fool has a disclosure policy.