This Is What Investing Manias Mean for Your Money

People are investing outside the box.

Are we talking about Bed Bath & Beyond?

That's one (big) example. But other investment manias have been getting attention, too. Backing up: An investing mania is when investors go wild and drive up the price on something. Sometimes WAY higher than it might actually be worth. See: Gamestop, which brought meme stocks to the spotlight with a 1,600% rise in early 2021.

But why?

Investing apps like Robinhood have made trading easier. (PS: A SEC report said Robinhood, which is often credited — or blamed — for helping make "meme stocks" happen, did everything by the book.) The pandemic's also given some investors enough time and boredom to get to know and invest in less familiar assets like Bitcoin and NFTs.

NF-what?

Let's Skimm it. Plus a few other popular investments:

NFT

Stands for "non-fungible token," aka a unique digital asset that can't be replaced. It often takes the form of virtual art but can be anything from virtual trading cards to digital makeup. When you purchase an NFT, you get a token secured by blockchain technology that says it's yours to keep. Or resell for a profit. NFTs saw a surge in 2021, but they declined in value last year, losing 97% of their trading value between January and September of 2022.

Cryptocurrency 

Encrypted digital money that can be used to make purchases on some sites. Unlike real-world currencies, they're not backed by any gov or central authority. Instead, like NFTs, many are blockchain-based. A few you may know: Ethereum, Litecoin, Dogecoin, and of course Bitcoin. And a steady stream of new kids on the block(chain). Like Shiba Inu coin, aka the "dogecoin killer." But warning: not all coins are for real. Squid token — based on Netflix's "Squid Game" — quickly rose to $2,856 per coin in November of 2021 before crashing to $0 after the scammers walked away with a few million dollars.

SPAC

Short for "special purpose acquisition company." It's basically a shell company that raises money by going public, then buys a private company...that they'll tell you about later. Meaning investors like you can purchase shares of a SPAC like any other company stock, but without knowing for sure what the business will be. Hello, risk. That's why they're also called "blank-check companies." But psst...the tea on rumored deals tends to spill ahead of formal announcements and encourage investors to buy.

Meme Stock

A stock made hot (or not) thanks to amateur investors coordinating their buys using social media and online forums like Reddit. Think: AMC Entertainment, Carvana Co., and Bed Bath & Beyond. All three stocks saw price jumps in early January, fueled by retail traders and their speculations.

So which one(s) should I invest in?

Before you fall for bandwagon bias and into any mania, recognize that all these investments have one thing in common: lots of risk.

One reason is that they're relatively new, so they have no long-term track record to help you gauge their performance potential. Also, their values are often tied to investor sentiment — that's how they feel about an asset and its price at a particular moment in time — rather than fundamentals, like what the asset is really worth. 

Hmm, okay. So which one(s) should I invest in?

Remember investing in SPACs and meme stocks is technically just like investing in regular stocks — but with a high-risk profile. So if you want to invest, think about what would complement your existing stock portfolio.

NFTs and crypto are something completely different. If you do decide to get in on the action, limit it to a small portion of your portfolio. And only invest with money you can afford to lose. That may not be as exciting as owning Jack Dorsey's first tweet, but a fully-funded future can be your own masterpiece.

theSkimm

Before you dive wallet-first into one of the latest investing crazes, be sure you understand what they are and the risks that come with them. Then you can decide whether they make sense for you.

Updated Jan 25  to add the latest on NFTs, SPACs, and meme stocks.