It’s often said imitation is the sincerest form of flattery. If you’re looking to be the next successful investor, looking to those who have already achieved investment success is a good place to start. Here are four successful investors who provide timeless lessons to learn from that will help shape your investment philosophy. To round out the field we have two Americans and two Canadians.

Warren Buffett

Warren Buffet is the Chairman and CEO of Berkshire Hathaway. He’s also arguably the most successful investor the world has ever seen. There’s a never-ending argument over what’s better: active or passive investing. Buffett has clearly picked a side: index investing. Buffett famously made a million-dollar bet: by investing in a low-fee index fund he could outperform a powerful hedge fund. A decade later and Buffett has proved the naysayers wrong, as he managed to do just that.
Investment fees (or MERs) can take a big bite out of your investment portfolio. If you’re looking to build a solid investment portfolio, low-cost investments like ETFs (that Smart Money offers) are your meal ticket to growing your portfolio long-term.

Peter Lynch

If you don’t understand a business, you probably shouldn’t invest in it. That’s one of the many golden investments lessons from American investor Peter Lynch. In fact, he takes it a step further: never invest in any idea you can’t illustrate with a crayon. Lynch once famously took a class of seventh graders out for dinner, illustrating each stock with a little drawing. If an investment is so complex that you have no idea where your money is going, you’re better off not investing. Maybe if more investors followed this lesson during the late 2000’s we could have avoided the financial crisis since few understood how mortgage-backed securities worked.

Kevin O’Leary

Kevin O’Leary has made a name for himself for not being shy to “say it how it is” as a venture capitalist on Dragon’s Den and Shark Tank. O’Leary (or Mr. Wonderful as he likes to call himself) isn’t afraid to speak his mind if he sees a bad idea. When he’s not on TV, O’Leary is a successful investor. One of O’Leary’s golden rules is that he won’t invest in a stock unless it pays a divided. And this makes sense. Many investors chase after yield, but it’s dividends that can make you rich. If you invested in the stock market since 1926, you would have made more money from dividends than capital gains. Divided-paying stocks encourage a long-term investing philosophy. You “buy and how” and watch the money slowly trickle in – and it adds up over time.
Who opened O’Leary’s eyes to dividend investing? It was his dear, old mother. When she passed away, he was amazed at the investment portfolio she had accumulated using dividends. O’Leary has a strict investment rule: if it doesn’t pay a dividend, he won’t buy it. You don’t have to be that strict of an investor, but it’s something to consider.

Derek Foster

Derek Foster is six-time National Bestselling author. He is also Canada’s youngest retiree, leaving the workforce at the ripe, old age of 34. Foster is a millionaire. Despite spending his 20’s backpacking through Europe, he’s a self-made millionaire. How did he do it? By investing his money in recession-proof stocks. For example, when the economy tanks, do people stop brushing their teeth? Of course not! That’s why Foster invests in blue-chip stocks like Colgate. Colgate has been increasing its dividend steadily for decades. Foster is living proof you don’t have to be an investing genius to strike it rich. In his book, The Idiot Millionaire, he shares his secrets of how anyone can achieve investing success like him by following his simple investing philosophies.

Who needs October playoff baseball when you have the U.S. election? Our beloved Toronto Blue Jays may be in the middle of a playoff race, but a lot of us seem to be captivated by the U.S. presidential election. On Monday we had our first of three presidential debates. The jury’s still out on who won, but that didn’t stop the Donald from continuing to make up his own facts.

Canadians are watching the U.S. election closely and with good reason. Canada has a lot at stake in the presidential election. Let’s take a look at what President Clinton or President Trump would mean for Canada’s economy.

What a Clinton Presidency Would Mean for Canada

Considering Canada is the U.S.’s largest trading partner (Canada and the U.S. exchanged $2.4 billion in goods and services every day in 2014, according to the Government of Canada), anything that impedes free trade could have serious consequences for the Canadian economy. The North American Free Trade Agreement (NAFTA) has been a hot-button issue during the U.S. presidential election. Hillary Clinton used to be a champion of NAFTA (her husband, former President Bill Clinton, signed NAFTA into law in 1993), but she has recently changed her tune. (Although, if there’s a saving grace, it’s that President Barack Obama was opposed to NAFTA when he ran for president, but didn’t end up renegotiating it.)

Clinton’s lack of support for NAFTA is concerning for the Canadian economy to say the least. The Canadian economy is predicted to grow at 2.1 per cent in 2017, according to the OECD. Any changes to NAFTA could lead to lower GDP growth for 2017 and beyond. This highlights the importance of Canada better diversifying its economy by not relying on the U.S. so much and signing other free trade agreements like the Trans-Pacific Partnership (TPP). That being said, the anti-trade sentiments and rise in protectionism expressed by the world’s biggest economies, such as the U.S. and the U.K. with Brexit, could have serious consequences on world trade.

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What a Trump Presidency Would Mean for Canada

While Clinton has been wishy-washy on her position on trade, Republican presidential candidate Donald J. Trump has been crystal clear: he opposes it. The Donald has been highly critical of NAFTA, referring to it as a “poorly-negotiated trade deal,” blaming it for the U.S. trade deficit.

“I like free trade, but free trade is not free trade, it’s dump trade because we lose with China, we lose with Mexico, we lose with Japan and Vietnam and every single country that we deal with,” said Trump in a campaign stop in Rochester, New York, in April. He went on to mention Canada: “We lose with Canada --- big-league. Tremendous, tremendous trade deficits with Canada.”

Despite economists presenting facts that free trade leads to a higher standard of living for everyone, the Donald doesn’t see it that way. Trump has called out NAFTA on several occasions, promising to “renegotiate” or “break” it if he’s elected president. Trump isn’t a big fan of the TPP either, calling it a “bad deal” for America that’s sending jobs overseas. (The TPP is essentially dead in the water for Canada if the U.S. doesn’t end up signing on, which is a distinct possibility at this point.)

How Will the Election Play Out?

With election day, November 8, 2016, quickly approaching, it will be interesting to see how the election plays out. The election has already impacted investors. The Fed has decided to leave interest rates where they are for the time being to see how it plays out. If the Fed decides to hike rates in December, it could lead to a lower loonie, which could hurt Canadian investors if the Bank of Canada Leaves interest rates where they are. Circle election day on your calendar if you haven’t already – this is likely to be the most exciting campaign to date.

Are you looking to start a family in the near future? Better factor this into your home-buying decision. The challenges millennials face today are well-documented: record-high student debt, a lackluster job market, and a pricey housing market, to name a few. Before you make an offer on your dream home, it’s important to factor in how having a child will impact your family’s budget.

Having a child is a wonderful experience, but it doesn’t come cheap. The average cost of raising a child to age 18 is $243,660, finds MoneySense magazine. You should expect to spend $12,825 per child annually or $1,070 per month (and that’s without considering the added cost of post-secondary education). If you’re planning on having more than one child like many parents do, you can easily end up spending more on raising your children than your housing costs (not that there’s anything wrong with that, but it’s important to be aware).

Why are children so darn expensive? One of the main reasons is sky-high childcare costs. In Toronto, which holds the dubious honour of being Canada’s most expensive city to raise a child, parents can expect to spend an average of $1,033 a month on daycare fees, finds a study by the Canadian Centre for Policy Alternatives.

Be Ready and Willing to Make Trade offs

When it comes to buying a home in red hot real estate markets like Toronto and Vancouver, home-buyers often have to make trade-offs. Just because your lender says you can afford a home for $800K, doesn’t mean you should spend that much. It’s important to run the numbers and see what your mortgage payments would be. If you can find a home for $700K or $750K with everything you’re looking for – great! It gives you and your budget that much more breathing room.

Also, don’t forget to factor in lower income during maternity or parental leave. You can only expect to receive 55 percent of your working income during maternity/parental leave up to a maximum of $537 per week. If you decide to return to the workforce, you’ll have to factor in daycare costs, as well (if your parents are willing to babysit for you, it can mean the difference between buying your dream home and a smaller home in a not-so-nice neighborhood). If you feel your budget leaves little room to raise a family, you may be better off opting for a starter home or condo instead of your dream home.

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Buying As Much Home As You Can Afford

Avoiding the common mistake of buying as much home as you can afford, makes raising a child that much easier. You can spend time with your family and may not have to take on a second job to pay for your dream life. Most importantly, a home you can afford gives you more of a cash cushion. You won’t find yourself “house rich, cash poor.” You’ll have money left over to save and invest in your RRSP, TFSA and RESP. (To help your savings grow even faster, Smart Money has a number of low-fee ETFs to choose from.)

There’s no better experience in the world than starting a family, just make sure you aren’t blindsided by the costs. Buying a home you can truly afford makes life a whole lot easier for your family and you.

“To boldly go where no man has gone before.”

It’s the 50th anniversary of Star Trek – can you believe it? No one could have predicted Gene Roddenberry’s brainchild, the original Star Trek, which was cancelled after only three seasons, would become a billion dollar franchise. Since then Star Trek has produced numerous TV shows (the latest of which is being filmed in Toronto), movies and even a Klingon dictionary. Star Trek has a loyal following – there are millions of Star Trek fans (or Trekkies, as they prefer to be called) around the world.

Now I know what you’re thinking – what do Star Trek and investing possibly have in common? More than you think. In Star Trek, low ranked ensign officers where red shirts. There’s a running gag that the red shirt ensigns are usually the first to die in a dangerous situation by latest enemy, whether it’s the Klingon or Romulans. Relating this back to investing, while red shirt ensigns may be funny in the Star Trek universe, what isn’t funny is red shirt ensigns (or what I like to call high-fee mutual funds) weighing down your investment portfolio.

CRM2: Where No Man Has Gone Before
The introduction of CRM2 has really helped open the eyes of investors on the high mutual funds fees they’re paying. A management expense ratio (MER) of 2.5 percent may not seem like a lot on a $100,000 portfolio, but when it’s expressed in actual dollar figures – $2,500 – it can come as quite a surprise. The higher your mutual fund’s MER, the tougher it is for it to match the benchmark, let alone outperform it.

MERs aren’t the only thing weighing down your investment portfolio. Your financial advisor is compensated in other ways. One of those ways is loads. A load is a one-time fee you pay when buying or selling mutual funds; it typically ranges from 4 to 8 percent (although sometimes it’s a flat fee). As the names suggest, a front-end load is a fee you pay when you buy a mutual fund, while a back-end load is a fee you pay when you sell.

Surviving the Next Klingon Invasion
Similar to the expendable red shirt ensign in Star Trek, loads mean you’re likelihood of survival (or outperforming the benchmark) is that much less since you’re already starting from behind. With a front-end load, money it taken off before you even invest in the mutual fund. That means you need to make back the load – 4 to 8 percent – before you can break even. With back-end loads, you pay a fee when you sell. The longer you hold onto the mutual fund, typically the lower the fee. This only encourages you to hold onto underperforming mutual funds (red shirt ensigns) in your investment portfolio.

While most mutual funds don’t have loads, many still do. You may have one in your investment portfolio without even knowing it. There are a plethora of mutual funds in the Canadian market: of the 6,200 mutual funds, 4,000 are no-load – that means 2,200 still charge a load.

How do you avoid paying a load? The easiest way is by buying ETFs. Unlike mutual funds, ETFs don’t come with loads. By replacing high-fee mutual funds with ultra-low fee ETFs like those offered by Smart Money Invest, you’ll better your chances of survival during the next market downturn – or Klingon invasion.

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It’s back to school time! For parents and children it’s time to get back into the school year routine. Your child may be years away from attending college or university, but it’s never too early to start planning. As a parent you’re well aware sending your child to college or university is expensive, but do you know how much it truly costs?

According to a recent poll by CIBC, four out of five parents aren't able to accurately estimate university tuition fees. The average tuition fee for an undergraduate program is $6,191 per year, according to StatsCan. Only 20 percent of parents correctly estimated that tuition fees range from $6,000 to $9,999.

Tuition fees aren’t the only thing causing confusion amongst parents. 37 per cent of parents said they had no idea how much to budget for non-tuition expenses, such as books, supplies, groceries and accommodations.

Putting your child through college or university doesn’t come cheap. Parents can be expected to shell out on average $25,000 per year or $100,000 over a four-year university degree.

Many Parents Don’t Understand RESPs

Registered Education Savings Plans (RESPs) are specifically set up for parents to save towards their children’s education, yet there’s a lot of confusion surrounding them. Despite the confusion, many parents still use them: 76 percent of parents opened an RESP to save toward their children’s post-secondary education.

A misunderstanding of RESP rules means parents may not be taking full advantage of their child’s RESP. 31 percent of parents were surprised to learn they could catch up on claiming Canada Education Savings Grants (CESG) in a following year. Although RRSPs and RESPs may both be registered account with Canada Revenue Agency, only RRSP contributions are tax deductible; RESP contributions aren’t. Despite this, 53 percent of parents believed they could claim RESP contributions on their tax return. Furthermore, 45 percent of parents believe the money from their child’s RESP can only be used to pay tuition fees, when this simply isn’t true; it can go towards other education-related expenses.

What You Need to Know About RESPs

To take full advantage of the RESP, it helps to understand the rules. You may not receive a tax deduction for contributing to an RESP, but like an RRSP, your money grows tax-free inside. You may be wondering why you wouldn’t simply save for your child’s education in your Tax-Free Savings Account (TFSA). What makes the RESP advantageous is RESP contributions are eligible for a 20 percent government grant. You can maximize the grant by contributing $2,500 each year (that works out to an annual grant of $500). Not able to take advantage of the full grant in a year? No problem. You can catch up and qualify for grants for previous years. Post-secondary education is costly – the good news is you can contribute a lifetime maximum of $50,000 to your child’s RESP until they reach age 31.

Once your son or daughter is ready to go to college or university, any money withdrawn from the RESP is taxed in their hands. This can lead to major tax savings, since your child is usually at a lower tax bracket (he or she may not work or work part-time during college or university). On top of that he’ll be eligible for the tuition, education, and textbook amounts tax credit, further lessening any taxes payable.

The RESP is flexible and can hold various investment types. SmartMoney has Exchange Traded Funds (ETFS), perfect to hold inside your child’s RESP and save towards their post-secondary education.

This is only a brief overview of RESPs. You can read more on the Canada Revenue Agency website.

It’s the most wonderful of the year – at least for parents, not children (if you haven’t seen this hilarious Staples back to school TV commercial, be sure to check it out). With Labour Day next week, back to school is just around the corner.

Back to school spending is expected to be up this year – parents are expected to spend an average of $472 per child on back to school supplies, finds a survey by RetailMeNot. This is likely explained by the new Canada Child Benefit (CCB). Under the CCB, families with children under age 6 can expect up to $6,400 per year, while those with children between the age of 6 and 17 can expect up to $5,400 annually.

Worried about going over-budget? Here are four back to school spending tips, so you don’t break the bank.

1. Make a List and Check it Twice
Similar to Jolly Old Saint Nicholas, it’s a good idea to make a list and check it twice. Before heading to the mall, take the time to make a back to school shopping list in the comfort of your home. To teach your son or daughter the value of a dollar by getting them involved. Come up with the list together or make two separate lists and compare. Take an inventory of what you already have. You might be surprised to find out your daughter has enough pencils to last her until university at the bottom of her closet.

2. Finding a Diamond in the Rough
Don’t wait until the last minute to do your back to school shopping – avoid the crowds at the mall and start early. The minute school is out for summer, be on the lookout for deals. Whenever you see a good deal, stock up. If you wait until the Sunday before Labour Day, chances are the good deals will be all gone and you’ll end up paying full price for something you could have bought for half price last week.

3. Shop from the Comfort of Home
Wouldn’t you rather spend your Labour Day long weekend relaxing at home and enjoying the nice weather, instead of being cooped up at the mall? Don’t just assume the best deals are to be had in stores. There are plenty of deals to be found online, you just have to be willing to take the time to look. Some retailers even offer free shipping on orders over a certain threshold, say $50. Smartphone apps like RetailMeNot make couponing and comparison shopping even easier.

4. Come Up with a Budget
How do you know if you’re going to go over budget if you haven’t taken the time to come up with a proper budget? A budget helps keep your spending in check. Instead of filling your shopping cart up with school supplies and realizing you don’t have the money when your credit card statement comes up, set a budget ahead of time and track your back to school spending. If you’re going over budget, consider delaying the nice-to-haves like a new laptop, especially if the old one works perfectly fine.

Bonus Tip: Invest in Your Child’s Future
Don’t let your child face the burden of the high cost of post-secondary education on their own. As soon as your child is born, set up a Registered Education Savings Plan (RESP). Regularly contribute to your child’s RESP with low-cost ETFs and watch your child’s education savings grow.

If you’re a regular viewer of BNN, you’ve probably heard terms like bear market and bull market thrown around a dime a dozen. You may be familiar with them, but do you truly understand what they mean? Here are five terms every stock market investor should know.

Bear Market:
A bear market is a market investors tend not to enjoy so much. Investors are pessimistic and lack confidence, as the stock market stays flat or heads downward. A bear market is typically coupled with weak economic growth and low interest rates. When the stock market falls at least 20 percent from its peak within two months, we’re considered to have entered a bear market. The financial crisis of 2008 is a prime example of a bear market. You may be wondering where the term bear market comes from. When a bear is on the offensive, it swipes its claws downward at its prey, which is the direction the markets are heading in a bear market.

Bull Market:
A bull market is a market investors enjoy. Investors are optimistic and full of confidence, as they expect the good times to continue. A bull market is often coupled with strong economic growth. It’s when stock prices are trending upward or are expected to head higher in the years to come. The longest bull market in North American history happened from the early 1980’s until the early 2000’s. You may be wondering where the term bull market comes from. When a bull is on the offensive, it thrusts it horns upward, which is the direction the markets are heading in a bull market.

Value Stocks:
Are you a bargain hunter? Then you’ll probably enjoy investing in value stocks. A value stock is a bargain in the eyes of investors – that’s because the market has undervalued the stock based on its fundamentals, such as dividends, earnings and sales. Value stocks tend to have high dividend yields and low Price/Earnings ratios. As an investor, you hope to buy the investment while it’s undervalued before the price is corrected by the markets. A good place to look for value stocks is on stocks that have recently reached 52-week lows.

Growth Stocks:
Another type of stock you can invest in is growth stocks. As its name suggests, a growth stock is a stock that’s expected to grow at a faster pace compared to the rest of the market. When looking for growth stocks, not only do you want to focus on companies that have grown, but you also want to focus on those with fantastic growth potential for the future.
While many value stocks pay dividends, growth stocks typically don’t, instead choose the reinvest their earnings into the company to help it grow further. Technology companies like Apple are a perfect example of growth stocks (although Apple now pays a dividend). Although growth stocks tend to have a bigger upside, they also come with a bigger risk. For example, if the next Apple product is a dud, it could hurt the stock’s growth, not to mention the stock price.

Income Stocks:
A third type of stock are income stocks. When you’re looking to invest in an income stock, you’re looking for an investment with a dividend yield better than bonds and GICs. Income stocks come in two types: utility stocks and preferred stocks. Both these stocks tend to pay competitive dividends compared to what the rest of the market is offering.

No matter what type of market you’re investing in – bear or bull – Smart Money Invest offers low-cost ETFs for your portfolio. By investing in ETFs, you can spread your risk and ensure you’re properly diversified to help your money grow long-term.

How do you measure financial success?
Many of us like to measure it with our income. While income is one way, your net worth is a much better reflection of how wealthy you are. Sure, getting a pay raise at work is nice, but your net worth is the number you really want to maximize.

To illustrate the difference between income and net worth, since it’s summertime and the Olympics are in full swing, I’ll use the sport of golf. Income is a lot like a single hole in a round of golf. Let’s say on your first hole you get an eagle – fantastic! You’re on top of the world. You get a birdie on your second hole. You’re at the top of the leaderboard. You give yourself a pat on the back.

But golf isn’t about just one or two holes – similar to net worth, it’s about how you do in the long-run (in the case of golf, over 18 holes). Let’s say you bogey 10 of the last 16 holes and find yourself at the bottom of the leaderboard. Too bad, you’re out of contention.

You can have the nicest clubs in the world (make a decent living), but if you don’t use your clubs (money) wisely, you could end up on the losing end (broke). Ok, that’s enough for the golf analogy, but hopefully you get our point.

What’s Your Net Worth and Why It Matters
“Net worth” may sound intimidating, but it’s really not. But before we discuss net worth, it helps to understand what it is. Your net worth is your assets (what you own) minus your liabilities (what you owe). Assets include your chequing account, savings account, investments such as mutual funds, ETFs and GICs, your home and car. Liabilities include your car loans, credit card debt, your mortgage and line of credit.

To calculate your net worth, find the difference between your total assets and total liabilities. Here is the basic net worth formula:
Net Worth = Total Assets less Total Liabilities

Don’t worry, you don’t have to be a math whiz to calculate your net worth. GetSmarterAboutMoney.ca has an online calculator you can use to quickly figure it out.

Where Should Your Net Worth Be?

It all depends on your age. The Globe and Mail wrote an interesting article that includes a table with net worth milestones for the average Canadian. For example, at age 30, the average Canadian only has a net worth of $70,000, but by age 35 it’s over doubled to $165,000. Remember, this is only an average. If you’re below the average, there’s nothing to be ashamed of, as long as you take steps to increase your net worth.

Aim to grow your net worth over time by increasing your assets and decreasing your liabilities. For most people, their most valuable asset is the family home. By paying down your mortgage and eventually paying it off, you’ll get rid of your biggest liability. You don’t want all your money tied up in your home since it’s an illiquid asset. At the same time, aim to grow your investments. Regularly investing in low-cost ETFs is an excellent way to accomplish this.

Ideally your net worth will be a positive number, but that’s not always the case. For example, if you’re a millennial fresh out of university with $20,000 of student debt, your net worth may be negative, but don’t despair. By landing a well-paying full-time job, you can start chipping away at your debt and eventually have a positive net worth.

There are many milestones in relationships
Your first date, meeting the in laws and your one year anniversary, but no milestone is bigger than marriage. Getting hitched is a big step, yet most couples haven’t had the financial “talk” when they walk down the aisle.



Only a third of couples planning to get hitched or enter a common law relationship in the next two years have had serious discussions about their finances, finds a CIBC poll. Meanwhile, 40 percent of couples say they’ve only talked about managing their finances together “briefly.” This despite the fact 99 percent of couples said it’s important to talk about money as a couple. It doesn’t get any better once couples get married. 83 percent of couples have no idea when they’ll have the money talk and that they’ll “play it by ear.”

Couples spend months – even years – planning their wedding day, yet most couples don’t spend any time planning their financial lives together. A lack of financial planning can lead to fighting as a couple and can even end your marriage in a worst case scenario. A BMO poll of couples revealed fighting over money is the top reason for divorce (68 percent), followed by infidelity (60 per cent) and disagreements about family (36 per cent). That’s right, you read that right – fighting over money can be worse than cheating on your spouse in some instances!

One of the major disagreements between couples about money is debt
66 percent of those tying the knot or living common law come into the relationship with some form of debt. Common debt includes credit card, mortgage, personal and student debt. Meanwhile, 46 percent of couples want to save up for a trip or vacation within two years of marriage. That debt can come as a rude awakening and cause couples to delay major milestones together like buying their first home and starting a family.

If you want to better your chances marital bliss, talking about money up front is key. The For Richer or Poorer report makes several suggestions for couples to get on the same financial page.

Don’t avoid talking about money
Once you decide to get married, start planning your financial lives together. There are several ways for couples to manage their finances, including sharing everything (one joint bank account), sharing expenses (a joint bank for paying expenses) and assigning expenses (you decide with your partner which expenses to cover).

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Plan to save
Money is a lot more than expenses. In order to accomplish long-term goals like buying a car or saving for retirement, you’ll need to figure out how much money you’ll want to set aside. You’ll also need to decide how that money is to be invested. If you’re looking for a low-cost investment option, ETFs are worth consider. Smart Money Invest offers a great selection of low-cost ETFs to help your money grow faster.

Know your money personality
Before walking down the aisle, know your partner and your money personalities. There are four main personalities: the super-saver, the cautious spender, the carefree and the avoider. If you’re a super-saver and your partner is the carefree, it can lead to fighting once your finances are combined. That’s why it’s so important to talk up front about money to avoid fighting later on.

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“Gotta catch ‘em all!” The Pokémon craze has once again caught fire. It’s hard not to turn around and see people frantically dashing in the streets to catch Pokémon. After being a mega hit in the late 1990’s, the billion dollar video game franchise has reinvented itself with its first ever Pokémon mobile app.

If you’ve never heard of Pokémon, here’s a brief run down. Your goal is to catch Pokémon – short for pocket monsters. Pokémon are caught with Poké Balls. Pokémon aren’t just to collect – you can train them so that they evolve and gain new moves and abilities. Trainers battle it out to see who’s Pokémon come out ahead.

The Roller Coast Ride of Pokémon GO

When Pokémon GO was launched in the U.S., Nintendo’s market capitalization more than doubled to 4.5 trillion yen (US$42.5 billion). Pokémon was hailed as a mega success, helping make Nintendo relevant again. Pokémon GO became the number one downloaded smartphone app. Investors couldn’t get enough of Nintendo, buying up its shares in record numbers. Things were rosy at Nintendo.

Unfortunately for Nintendo and investors, the celebration was short-lived. Nintendo’s stock looks a lot like a roller coaster in July. In fact, last week was the worst week for Nintendo’s stock in 27 years. Nintendo’s shares plummeted 27 percent on news that the launch of a highly anticipated Pokémon GO accessory would be delayed until September.

This isn’t the only reason Nintendo’s stock is down. When Pokémon first came out, it was assumed Nintendo would be raking in the Poké profits. However, it was soon revealed Nintendo isn’t going to directly profit from Pokémon GO. That’s because Nintendo didn’t develop or publish the game. Furthermore, Nintendo only has a share the Pokémon company and Niantic, the masterminds behind Pokémon GO.

That’s not the only concern of Pokémon GO. Monetizing smartphone apps has always been challenging. Pokémon GO is no exception. Pokémon GO is a free app, so Nintendo doesn’t make money from downloads. However, Pokémon GO does have in-app purchases. Players can purchase Poké Coins, which can be exchanged for various in-game power-ups and upgrades. It remains to be seen how successful the in-game purchases will be.

Pokémon GO and Investing

Since this is a personal finance blog, you’re probably wondering what Pokémon GO has to do with investing. Pokémon GO and investing have more in common than you think. A lot of parallels can be drawn between the rise and fall of Nintendo’s stock and the dot-com bubble.

During the height of the dot-com bubble, the Price-to-Earnings ratio for some companies were really out of whack. This should have raised a red flag for investors, but most chose to ignore the warning signs. When it was discovered a lot of dot com companies were just operating out of a garage in Silicon Valley and weren’t actually making money, it led to the dot-com crash

The dot-com bubble and Pokémon GO serves as a valuable lesson for investors. Follow Peter Lynch’s golden rule and invest in only what you know and understand. If more investors had of done their homework and looked at the balance sheet of Nintendo, they would have realized Nintendo wasn’t going to make a mint off of Pokémon GO. Hopefully this serves as a wake-up call for investors that you shouldn’t rush into the next hot stock without truly understanding the fundamentals.

Investing in one stock is very risky. If you’re looking to be well diversified, ETFs are the way to go. We at Smart Money Invest offer personalized portfolios with ridiculously low fees. Our rate of 0.69 percent is amongst the lowest in the country, helping your portfolio grow even faster.