Disclaimer: I am not a financial advisor. None of this is financial advice. I encourage you to do your own research.

In the meantime, as I attempted to fix more broken appliances, the stock market continued to soar to new heights in 2020 and 2021. Despite the Covid bear market in early 2020, the S&P 500 gained 18.4 percent in 2020 and went on to reach even newer highs in 2021, returning 28.71 percent by the end of the year! Covid had sadly ravaged small businesses and inflicted pain among sectors of the economy like the service and travel industry. But corporate America was alive and well and several factors ensured both the stock market and housing market continued to thrive. Lowered interest rates, pent up consumer demand and a shift to digitalize work and play were driving up the prices of stocks –  and real estate.

Throughout the pandemic governments around the world lowered their interest rates and gave out loans and relief packages in a series of measures aimed to stimulate the economy (source). Up here in Canada, lowered interest rates allowed Canada’s big banks to drop their mortgage rates. Some independent mortgage brokers were handing out rates as low as 0.99 percent (source). The lower the mortgage rate, the greater the loan you could qualify for. And while many people had lost their jobs and were not able to take on a million-dollar mortgage, there was a special class of corporate workers fortunate enough to continue making their high corporate salaries from home. With the pandemic now in its second year it appeared work-from-home was here to stay. Why not use your high salary to move out to greener pastures and take calls in your underwear?

As a result, Torontonians began to sell their tiny downtown condos and semi-detached houses and head to the suburbs and countryside for cheaper housing and even more space. The price escalation was “widespread” with some smaller cities like Brantford and our beloved North Bay reporting a 40% year-over-year gain (source)! But I didn’t need a sales report to tell me that my small northern city was booming. On my morning walks around the neighborhood I would see For Sale signs quickly replaced by Sold – over asking!…among a sea of Amazon packages piled up on doorsteps.

Amazon and the rest of Big Tech benefitted greatly from the pandemic throughout 2020 and 2021. In fact, the combined revenue for Amazon, Apple, Alphabet, Microsoft and Meta (Facebook) was 1.2 Trillion in 2021, up 25 percent from 2020 (source). How had this happened?

The pandemic had changed the way we worked, played and shopped. People were forced to log into work and school from home which required Microsoft Teams, Zoom, and a suite of cloud computing and cyber security solutions. Too afraid to venture outside to malls and grocery stores for fear of the virus, consumers did their weekly shopping online, often finding the best price through a simple Google search. With nothing to do at night they stayed in scrolling Facebook on their iPhones or streaming Netflix on Amazon Prime (source).

And while our new digitized way of life drove record earnings for Big Tech, ultimately raising their stock prices, retail investors continued to send tech stocks even higher. 2021 was indeed the year of the retail investor, where the average Joe, flush with cash from unspent stimulus cheques and nothing but time on his hands, could suddenly launch a day-trading career from his living room and bet on hot stocks from Tesla to AMC (source). These stocks soon became known as ‘meme stocks’, heavily discussed, pumped and dumped by the Reddit group WallStreetBets.

When the retail investor was not pumping the next hot stock on Reddit, he could be found making another trade on Robinhood. Rock-bottom interest rates made it possible for trading platforms like Robinhood, already offering commission-free trading, to now offer 2.5% margin loans to retail day-traders (source). Margin loans are a no-no in the responsible financial independence space, but they were embraced heavily by retail day traders. Margin loans allow you to buy stocks with money you have borrowed from your trading account. The rationale is, if you can borrow 100k for $2,500, but make an even bigger profit then you’ve won. But when the stocks start coming down the trading platform can implement what’s known as a ‘margin call’, where they force the day traders to sell at a loss so they can pay back their loan. Sadly, one too many WallStreetBets investors reported losing a chunk of their life savings on margin calls during the 2021 meme stock era.

In addition to recklessly taking out margin loans, many retail investors were also heavily participating in options trading, where you make a deal to buy or sell a stock at a preferred price. In 2021, options trading was at an all-time high, driven by the retail investor (souce). You can make a lot of money from options trading, but if the stock goes in the opposite direction, you can be forced to sell your position at a loss, in what’s known as a ‘squeeze’.

And that is exactly what happened in January 2021 during the now famous Gamestop saga, although this time it was the hedge funds being squeezed. Retail investors caught wind that some powerful hedge funds had bet against the Gamestop stock (GME) (source). Banding together, the Redditors turned GME into a global meme stock and drove the price higher, forcing the hedge funds to cover their short positions by selling. This only drove the price even higher, and soon the stock had skyrocketed over 6,000% since the summer of 2020 (source)! From my living room I watched the stock quickly crash, then go up again, then crash, then go up again.

The news media loved the David and Goliath story of retail investors catching the billionaire hedge fund managers with their pants down, all led by one brave revolutionary YouTuber named Roaring Kitty. It seemed like everyone was throwing their last $10 into GME, not just to make money, but to be part of something larger.

I admit there were moments when I would catch my finger hovering over the ‘buy’ button and I would have to talk myself down from making a grave investing error. As an index investor I had never bought an individual stock because I knew myself too well. I knew the moment I started trading individual stocks would also be the moment I sold my globally diversified portfolio for some hot stock, and I could very well wipe out my entire life savings. And that’s just not something I am willing to risk.

But it was tempting. Oh boy, it was tempting! The bull market of 2021 was a euphoric time. Even my simple index funds were going up 0.50% every day. My portfolio was sitting at a new high of 650k. Every morning, I would check the futures from my bed while sipping my coffee and see another day of green on the screen. It was an unbelievable feeling to know I was practically guaranteed to make another $3,250 that day, before I even turned on my laptop. I became hubristic. I didn’t need my corporate job! Why would I stay chained to my desk on a beautiful summer’s day while my corporate overlords droned on, my workload increased and my conference calls ran into the evening, when I was clearly making more in the stock market without even getting out of bed?

What had I become? Just five years earlier I would have given anything to be able to work remotely full time so I could live with Victor, in a beautiful house no less. Now I had everything I had ever wanted, and it still wasn’t enough. But it wasn’t money or material things I wanted. It was time and space. I wanted to be able to do what I wanted to do when I wanted to do it. I wanted to be able to roll out of bed and go for an hour-long walk in the sun. I wanted to stretch, run, read books on the back porch and listen to the birds chirp, maybe donate my time and skills to a worthy cause. Was that so bad?

Repeatable steps I took that you can too!

  • Bull markets can be exciting times, but what goes up can eventually come down, even if the historical down markets have only been temporary. Continue to invest during the highs, but don’t get caught up in the hype. Never take out a margin loan to invest, and don’t stray from the low-cost broad-based globally diversified portfolio you have been building. A single stock may look hot today, but it’s not worth gambling your financial independent future away.
  • If you think you might be tempted to trade recklessly, please get support from family and friends and call Gambler’s Anonymous. And as much as I advocate for DIY investing of low-cost index funds, if you find yourself making day-trades in your underwear it might be a good idea to seek out a professional robo-advisor like Wealthsimple or Justwealth who can safely invest your money in a low-cost broad-based index fund. You’ll pay a slightly higher management fee than you would if you invested on your own, but it might be money well-spent if it prevents you from gambling your life savings on a single stock.