Are You Investing to Score Points or Make Money? Cautionary Tales From an Investment Adviser

Have you become numb to risk? Is your brokerage app or website fueling your desire to trade? An investment adviser explains why it always pays to be cautious.

By Jared Elson, Investment Adviser

published 18 January 2026

in Features

Mature man playing basketball on sports court

It's human nature to notice a history of successful outcomes in risky situations and assume the outcome of that situation will therefore always be successful.

It's risky to run a red light, but if you do so and don't crash, you're more likely to do it again because you were rewarded by not having to wait at the stoplight. The more red lights you run without crashing, the more comfortable you will feel running those red lights.

Risk is part of the package whenever you invest your money in something that isn't guaranteed. This can work to your advantage because, usually, higher-risk investments carry with them higher potential returns.

From just $107.88 $24.99 for Kiplinger Personal Finance

Become a smarter, better informed investor. Subscribe from just ~~$107.88~~ $24.99, plus get up to 4 Special Issues

CLICK FOR FREE ISSUE

https://cdn.mos.cms.futurecdn.net/flexiimages/y99mlvgqmn1763972420.png

Sign up for Kiplinger’s Free Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

But it can also be detrimental if you become numb to the perception of risk that should accompany your investments.

About Adviser Intel

The author of this article is a participant in Kiplinger's Adviser Intel program, a curated network of trusted financial professionals who share expert insights on wealth building and preservation. Contributors, including fiduciary financial planners, wealth managers, CEOs and attorneys, provide actionable advice about retirement planning, estate planning, tax strategies and more. Experts are invited to contribute and do not pay to be included, so you can trust their advice is honest and valuable.

A good example is the stock market. Buying stocks, whether on an individual basis or through a vehicle like a 401(k) or ETF, entails risk.

However, because the average yearly return in the stock market has been about 10% for decades, investors can begin to view their market investments as safe.

Two modern-day classic case studies illustrate this problem: Enron and GameStop.

Enron: Everything was great until it wasn't

It's difficult to remember now, but Enron had a sterling reputation as a solid company with excellent financials. Its share price peaked at $700 in the year 2000, and those who'd invested heavily and those who worked at Enron years before felt secure in the knowledge they'd retire with a comfortable nest egg, thanks in large part to the gains their shares had enjoyed.

By December of the following year, Enron had collapsed entirely, and those nest eggs were considerably smaller.

Late-career investors in Enron, confident their stock would continue to gain in value, hadn't moved their money into safer investments as they approached retirement.

Doing so was often seen as a money-losing proposition: Why move money into a vehicle with much lower returns when the higher returns they'd been enjoying from Enron showed no signs of disappearing?

This would prove fatal to many of their retirement plans. While would-be retirees were later able to claw back some of their funds through more than $7 billion from banks that had helped Enron carry out and disguise the shady practices that led to its collapse, that settlement would come years later, resulting in delayed, if not canceled, retirements.

Those with well-balanced portfolios still lost money on the portion of those portfolios that were invested in Enron, but, in general, they lost much less than those who bet so heavily on the energy conglomerate.

GameStop: Even the pros get it wrong sometimes

Lest you think Enron victims were simply amateurs in over their heads with investment strategy, the GameStop meme-stock phenomenon is an excellent example that shows even professionals with decades of experience can fail to recognize risk appropriately.

Melvin Capital's first full year in business was one for the record books. With returns on its investments of an astonishing 47%, 2015 established the hedge fund as a power player in the investment space.

Averaging 30% returns over its first six years, with a particularly successful run in 2021 when Melvin earned 51% on its investments, its stellar outcomes cemented its reputation as one of the best-performing funds on Wall Street.

That all changed in 2021. Melvin had taken out naked option contracts on GameStop's stock. Briefly, this meant Melvin was agreeing to sell stock it didn't own at a specified price.

It was betting the stock would be worth less than that price when the options matured, so it wouldn't be obligated to buy the stock and sell it at a loss to fulfil the options. Melvin lost.

Thanks to discussion and speculation circulated on forums including Reddit, GameStop's stock defied predictions — its price soared, resulting in those options being called.

Melvin suddenly found itself unable to cover more than $7 billion in losses and shut down a few months later.

Melvin's investing prowess was the stuff of legends, and its investment choices were right far more often than they were wrong, but years of successful returns did not insulate the fund from making a mistake that would lead to its destruction.

The lesson here is that if it can happen to experts who are among the best in the business, it can happen to you.

Risk analysis is critical to prudent investing

Many assume that analyzing the risk level of a given investment begins and ends with assessing the potential performance of the investment. What they often don't consider is liquidity.

If you take outsized risks with assets that are thinly traded, or with investments that cannot be exited at all, you could get stuck, unable to liquidate your way out of trouble if the asset is showing signs of unrecoverable declines.

A prudent investor isn't one who never takes risks, but is someone who analyzes all aspects of that risk, sets ground rules for the investment, and is disciplined enough to follow those rules when prospects turn sour.

The higher the risk, the stricter your ground rules should be — when investing in risky assets, it's critical to know when to take your losses and get yourself out of the investment before you lose more.

The gamification of investing

"Gamifying" aspects of our lives has become increasingly popular. By applying techniques used by video games to keep players playing and spending money, it's possible to manipulate people into going further with a given activity than they otherwise might. Investing is no exception.

Brokerage websites and apps make money when users trade stocks. It's therefore possible that some may want to nudge users into trading stocks as frequently as possible.

Websites and apps can accomplish this with gamification elements, such as setting personal goals for users to achieve, reflecting their activities on social media and making the stock trading interface as engaging as possible.

For some users, investing may no longer be about winning by increasing the value of their stock portfolio, but about "winning" via the activity of trading itself. The more you trade, the more the app may reward you with messages of encouragement, "achievements" and other gamified elements designed not to help you make money, but to increase trading volume.

These investors are at considerable risk of making imprudent investment decisions, especially if the app they use allows them to engage in very high-risk investments, such as option contracts.

As evidenced by Melvin Capital and the meme-stock phenomenon, that's a sophisticated area of investing where it's possible to make a lot of money, but it's also possible to lose your shirt.

History is littered with stories of bad results from imprudent investing. You have to know what you're doing, or work with someone who does, or you risk significant losses from which it could be difficult, if not impossible, to recover.

A financial adviser can be an excellent partner to help you recognize when you're considering an investment that involves outsized risk you might otherwise not have ascertained.

They can also help you spot systems that gamify investing to keep you from falling into the trap of making investment moves to score points rather than make money.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

TOPICS

Jared Elson is a Series 65 Licensed Investment Adviser Representative (IAR) and the CEO of Authentikos Advisory. Following a 10-year career with Yahoo, Jared identified an acute need for sound financial counsel in the tech industry and has excelled in giving tech professionals the tools they need to grow and preserve their wealth.