Paid Stock & Investment Newsletters – Are They Worth the Price?

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If you’ve ever searched the internet for investment advice, you’ve probably come across paid stocks and investment newsletters. These newsletters share the latest stock picks, for a fee, and tell you which stocks to invest in. They usually claim to get you the same results if you follow their advice.

Stock newsletters aren’t necessarily new, but technology and the rise of retail investing have made it much easier to create and market these newsletters.

Do these newsletters really help investors and generate the returns they promise if you follow their advice? Well no. According to the experts we spoke with, these stock news reports have unproven results and promote an investment strategy that has proven to be inferior to more stable investment strategies, such as a buy strategy. and long-term preservation. In other words, investing in individual stocks does not generate the same returns as, for example, investing in an index fund. Timing the market is usually difficult, and index funds take the guesswork out of your investments.

Wondering if paid newsletters are worth the cost? Keep reading to learn more about how these newsletters work, how much they cost, and if they’re really worth the price.

What is an investment newsletter?

An investment newsletter is a compilation of stock advice, market analysis and other investment recommendations. These newsletters usually work on a subscription model, where you pay a certain amount per month or per year to receive the newsletter.

“Historically, investment newsletters were actual letters sent out in the mail at regular intervals, usually monthly,” said Nate Tsang, founder and CEO of Wall Street Zen. “You would send a check to the author to get listed and get stock recommendations which you would then pass on to your stockbroker.”

But today’s stock newscasts aren’t all that different. Instead of sending a physical check to receive your newsletter in the mail, your credit or debit card is automatically charged and you receive the newsletters online.

Many of these newsletters are run by investment websites that provide market information on their websites. However, anyone can start this type of newsletter, even someone with little market experience or few qualifications.

It is important to note that there is a big difference between paid stocks and investment newsletters compared to financial media and educational sites. It is true that both exist to provide information to investors. But while financial media and educational sites exist to provide general advice and industry news, stock newscasts typically recommend specific stocks and stock picking strategies.

How much do they cost?

The cost of investment newsletters can vary greatly. Some can cost as little as $100 to $200 per year, or monthly fees under $20. On the other hand, some newsletters cost over $1,000 per month.

You may also come across free investment newsletters. And while the price may make these newsletters desirable, you should be just as – or more – wary of free investment newsletters, especially if they recommend specific stocks.

Ultimately, the creators of these newsletters make money somewhere. If they don’t make money from their subscriptions, they could do so in a way that is even more detrimental to investors. For example, the United States Securities and Exchange Commission warns that these newsletters can be used to carry out schemes such as:

  • Stock promotions where the newsletter is paid to promote the stock
  • “Pump and dump” or scalping systems where the newsletter promotes an action to raise the price, only to sell their own shares after the price has risen
  • Undisclosed conflicts of interest where the newsletter has a financial incentive to promote certain actions
  • False performance claims when a newsletter boasts a positive balance sheet, but lies about its results

What information is included in these newsletters?

Paid stock and investment newsletters typically provide stock market advice, often in the form of specific stock or sector recommendations. They can also provide stock market analysis to give you a better idea of ​​what is happening in the market or what they expect to happen with the market.

“Some provide in-depth information and rigorous reasoning; others are nothing more than marketing gimmicks,” Baker said. “The purpose of these newsletters is to provide enough valuable information that subscribers will continue to subscribe to.”

As mentioned, the information in these newsletters is very different from what you would receive from a financial media or educational resource. Websites and outlets like The Wall Street Journal, Morningstar, and others provide stock market information and educational resources. Rather than making predictions about the market, they are more likely to explain what is already happening in the market and describe what that means for you as an investor.

Although the distinction between recommendations and education may not seem significant, it is. Paid stock and investment newsletters recommend specific stocks they think you should invest in and often promise above-average returns if you follow their advice.

Educational resources, on the other hand, are not likely to recommend specific occupations. Instead, they provide you with information that can help you make informed decisions, and they never promise results.

Are paid newsletters worth the cost?

Whether they cost $5 a month or $500 a month, paid stocks and investment newsletters are generally not worth the cost for several different reasons. Stock-picking newsletters promote an investment strategy that has proven not to be the most effective.

“Significant research shows that markets outperform stocks,” said Dr. Guy Baker, CFP, Ph.D. and founder of Wealth Teams Alliance. “Five Nobel Prizes have been awarded for research supporting this view and many additional papers demonstrate how markets are more sustainable and predictable than trying to find the right individual stocks.”

Data has consistently shown that active inventors and advisors most often fall short of the overall market. And while an advisor might beat the market in some years, that’s a hard feat to replicate.

Instead of trading individual stocks, most investors – especially beginners – would be better off opting for a buy-and-hold index fund investing strategy. By investing in index mutual funds or exchange-traded funds (ETFs), you’ll end up with a well-diversified portfolio that can beat actively managed funds.

It can be tempting to invest in individual stocks when a newsletter writer boasts a record of consistently beating the market. But there are a few things to consider here. First of all, just because a newsletter writer says they constantly beat the market doesn’t mean they do. After all, no one regulates these newsletters to ensure that they are honest. And just because someone beat the market in a year doesn’t mean they’re likely to do it again.

“The caveat for these paid newsletters is the same as for any stock market advice: past performance is not an indicator of future success,” Tsang said.

How to start investing instead

The good news is that you can easily start investing without having to pay for expensive stock market newsletters. Financial experts generally recommend a well-diversified portfolio of index funds and ETFs. By investing in just one of these funds, you can gain exposure to hundreds, if not thousands, of companies in a single investment. And with just a few funds, you can create a well-balanced portfolio.

Pro tip

As our experts point out, active investors and advisors have proven to fall short of overall market returns. Rather than reading paid investment newsletters and picking individual stocks, you’re better off opting for a passive index fund investing strategy.

The other advantage of this investment strategy is that it is affordable to start with. These funds typically have no trading fees, and your only cost is a small expense ratio that is often less than 0.5% per year. And because these funds hold hundreds or thousands of underlying assets, you can have a well-diversified portfolio with a small amount of money.
To get the most out of your investment returns, focus on tax-advantaged accounts. You’ll save thousands of dollars in taxes over the life of your investment account. And by starting early, you can ensure a secure financial future without the stress of picking individual stocks.

Harry L. Blanchard