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What this Gamestop stock upheaval could mean for the future of finance

(BUSINESS FINANCE) Yay America! We’ve witnessed our first populist uprising in finance, all thanks to the Gamestop drama unfolding in the last week.

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Gamestop storefront in a shopping mall.

If you haven’t been living under a rock for the last week, chances are you’ve heard about the drama surrounding the GameStop stock. Essentially, GameStop – or that spot I used to frequent in middle school to search through bins for used N64 games – has become the epicenter for what’s being called the first populist uprising in finance. We love to hear it.

What happened?

For some background, GameStop became one of the most shorted stocks on the market. Groups within Wall Street’s hedge funds, known as the short sellers, have been colluding with each other and using the media to manipulate the market – and in doing so, were able to drive down the value of specific stocks (i.e., GameStop, which was essentially put on-course for bankruptcy) and, in turn, collect billions. This is common, legal practice on Wall Street. Just in case you were wondering.

Enter Reddit’s r/WallStreetBets page; another key player in this drama. With just shy of 2 million users last week (and now with over 7.4 million), WallStreetBets is a place where amateur day traders can exchange tips on penny stocks and rake in the “tendies”. Recently, one user popularized the fact that over 100% of GameStop’s stock was being shorted for no valid reason, so many from the group decided to take action – they began buying up cheap shares of the stock and demanding that their brokers not lend their stocks to short sellers, which in turn exploded the market value of GameStop as the short sellers attempted to “cover their shorts”.

Long story short (ha!), the entire GameStop drama has resulted in at least $3.3 billion disappearing from hedge fund balance sheets. One of the Wall Street hedge funds targeted by the Redditors, Melvin Capital, had to take a $2.75 billion bailout from other industry insiders. GameStop’s stock skyrocketed from $17.25 at the beginning of the year to $325 by this past Friday – reportedly the largest gains the company has seen in 18 years.

What you should consider

  • GameStop is brick-and-mortar. They sell the clunky, physical versions of games, which can be bought online with less hassle. Let’s face it; outside of the few nerds who still enjoy the experience of standing in line to be the first to buy the new game, the retailer is essentially becoming obsolete. COVID, of all things, has only expedited this process. Even with the release of new gaming consoles, such as the PS5, the likelihood of GameStop bouncing back to its former heyday is highly unlikely. Hence the term “meme stock”. With a meme stock, users chose to invest in the name of an allegiance, based on a feeling, or just “for the lulz”, not because of perceived value. Wall Street elites do this all the time (Tesla, anybody?), but with the complicity of the media so we all buy into it as well. When people say: “The stock market is just a graph of rich people’s feelings”, they’re not kidding.
  • Many of the involved Redditors are likely unemployed millennials, disenfranchised by the economic fallout from the pandemic, who have sat by and watched as the rich have gotten richer. Like, so much richer. According to some, this movement is less about the financial gains (though they must be sweet) and more about screwing the shorters – it’s about pointing out how corrupt a minimally-regulated free market is when it is only truly serving the elite inner circles of Wall Street at the expense of everyone else. So why can shorters short with mainstream backing just because they’re wearing suits?
  • While I wish GameStop-gate was a simple populist win, it’s important to note that the rich own most of the market shares. Though some Wall Street wealth is undoubtedly being redistributed into the pockets of Main Street right now, let us not forget that a byproduct of the Redditors’ rebellion is that the already rich stockholders are now even richer. This poses the question of if you can have a real populist financial uprising if you’re working within the current market systems in place, which are designed to feed the few and deregulated to insure it.

What does the future hold?

Good question. As of now, everyone is scrambling to make sense of what has happened; Redditors are celebrating with a sleuth of victorious memes while politicians (*cough* Janet Yellen), the hedge funds, and the media gatekeepers are calling foul play, collusion and even meddling from the Russians (LOL).

Also, can we talk about the fact that the politicians (on both sides!) who reacted so urgently to the GameStop mania were the same ones dragging their feet to come up with a stimulus checks agreement?

In addition, Robinhood — the now infamous commission-free investing tool — put a pause on GameStop and other meme stocks, like AMC, Nokia, BlackBerry, and American Airlines. Others want the FCC to get involved. The pot WOULD call the kettle black.

All this being said, I think that GameStop-gate has, in a lot of ways, opened Pandora’s box, exposing the possibility of power-shifts and new financial realities to many who might feel powerless and financially vulnerable, especially right now. That the average Reddit day trader, when properly rallied alongside her fellow troops, could give such a massive middle finger to the hedge funds and make a little extra cash along the way is truly inspiring.

I think we’re going to see more meme stock shenanigans (AMC’s stock had quadrupled at one point!), and the weeding out of greedy short sellers with the methodical drole-ness that only a subreddit could conjure. Unfortunately, I do also see an eventual crash, a bubble bursting, that will leave many investors who didn’t get out in time at a loss. And many plan on riding out the storm, when she comes, in solidarity.

Gamestop stock meme - Billionaire encourages middle class to invest in stock market, increases stock against them, Billionaire gains angry eyebrows in response.

My two cents

Don’t get me wrong – I don’t think short selling as it stands now should be legal, nor do I think speculative buying is a good idea. It’s gambling. And it’s dangerous.

But the Government would never enforce a blanket policy against all speculative buying, not when the billionaires who reap the majority of the benefits are buddy-buddy with the media and lawmakers. Plus, how would the right, in all its free-trade glory, react to increased market regulations? Could this mania uncover the elusive partisan glue we’ve all been looking for? Oh, how the turn tables.

My take? Beyond everything else, I see this as an opportunity for something even larger. We’ve learned that everyday people like you and me can be a part of something greater; something that shakes our market’s foundations. GameStop (sorry nerds!) is a random company that doesn’t have too much appeal beyond the games they sell (the same ones you can get online).

But what if we could drive up the market price on other companies that are being shorted for the wrong reasons? Companies that we could all get behind, such as ones that pay their workers well or that share equity with their employees. What we’ve learned from this all is that with collective action directed towards the corrupt “cartel” of Wall Street’s inner circle, you can take key players down and make waves.

And, at the end of the day, isn’t that the best way to approach a free market — to make it serve the people?

Anaïs DerSimonian is a writer, filmmaker, and educator interested in media, culture and the arts. She is Clark University Alumni with a degree in Culture Studies and Screen Studies. She has produced various documentary and narrative projects, including a profile on an NGO in Yerevan, Armenia that provides micro-loans to cottage industries and entrepreneurs based in rural regions to help create jobs, self-sufficiency, and to stimulate the post-Soviet economy. She is currently based in Boston. Besides filmmaking, Anaïs enjoys reading good fiction and watching sketch and stand-up comedy.

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Business Finance

Succession planning: Your options when not allocating to dependents

(ENTREPRENEUR) We’ve all heard the phrase “You can’t take it with you,” but succession planning provides peace-of-mind when leaving behind personal assets.

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Two silhouettes of people looking out over the sunset

Succession planning is a forward-looking strategy to ensure the “next in line” is prepped for what is to come. Within an organization, executives or management create a blueprint in hopes of a seamless transition of operations to “partners, future generations, or successor owners,” as Patrick Hicks, the Head of Legal at Trust & Will, states.

Succession planning can be useful in both professional and personal environments, including handing off entrepreneurial businesses or assets of any value. It’s important to create an Estate Plan for whom you plan to replace you in regard to property ownership.

Hicks says that, “Property rights are the cornerstone of modern society.” Property rights include the authority to determine how a resource is used or disposed of after death. This can include giving in a neighbor, a charity, or the most common choice, your family.

“Giving it all to family is typical but giving it all to non-relatives gets second looks. An estate plan is the manifestation of your wishes. It doesn’t matter if anyone else approves.”

It can come as a shock to hear if your assets are undesired by family- or even worse- if it comes as a surprise to them after a loved one’s death. Some choose not to communicate succession plans during one’s lifetime as it could damage familial relationships, but on the other hand, it could also provide a smoother transition. If an heir does not wish to take on the property, there is a chance for contest or litigation that could reduce the benefits of having a succession plan in the first place.

Another scenario is if your dependents do want a hand in property assets after death, but your wishes are to relinquish it elsewhere. Hicks says, “Typically, children do not have a right to claim their inheritance, unless some special rule applies.”

An example is if you leave behind a minor child or surviving spouse, where in that case, they may be entitled to receive support. This could include at least of share of property if no estate plan was in place. However, the necessary support can also be provided by the dearly departed through life insurance or another means.

“When it comes to estate planning, there are societal norms and bounds,” Hicks says, but ultimately, no matter the wishes, having a succession plan can provide peace-of-mind when thinking of the future.

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Business Finance

Tips on setting a more accurate freelance rate

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freelance rates

Setting a freelance rate can be difficult given that any industry has conflicting norms regarding an appropriate billing amount – a fact made more difficult by about a billion other factors such as experience, location, and so on. Whether you prefer to determine your rate the long-form way or you just want a calculator to point you in the correct direction, here are some tips for figuring out how much you should be charging.

Jennifer Bourn, business guru and freelancer extraordinaire, eschews the general “start with the salary you want and work backward” approach. Under this model, you would theoretically determine the amount of money you want in a year, divide that number by the number of hours you plan on working in a year, and charge whatever the quotient is (for example, $100,000 divided by 2080–which is 40 hours per week times 52 weeks in a year–is roughly $50 per hour).

The problem with this model, Bourn posits, is that it doesn’t actually get you what you want to earn. Once you take into account things like your overhead spending, vacation time, insurance, profit margin goals, and actual billable time versus the time you need to do administrative things, you’re looking at a substantially smaller figure at the end of the year.

Bourn’s solution is to start with the salary you want, add all of your expenses, multiply that result by your desired profit margin (e.g., 1.10 for a margin of 10 percent), and then divide by a realistic look at your billable hours for the year–not just the standard 2080 work days in a year (which is already problematic due to the aforementioned vacation time and potential for sick leave).

If all of that sounds like way too much effort, there are a myriad of rate calculators that you could use instead. Each of our following picks has a variety of applications:

  1. Clockify is a simple, straightforward calculator that looks at your industry, location, and experience level to generate an average hourly figure.
  2. Nation 1099starts with your desired salary and then gives you an hourly rate and a daily rate based on many of the factors espoused by Bourn.
  3. Your Rate asks for your desired annual income, your number of weekly billable hours, and your anticipated time off per year to come up with a set of rough figures for weekly, daily, and hourly rates.
  4. Freelance Rate Calculator is a Google Sheets template that takes into account your goals, expenses, billable hours, and more.
  5. All Freelance Writing is a more intensive calculator with an advanced option to determine all of your costs, goals, billable hours, time off, and so on, making it a pleasant option somewhere between Bourn’s long-form calculations and something like Clockify.

You should test your salary calculations in a variety of spaces if you have the time. This will ensure that you end up with a solid, well-corroborated result that you can quote to clients rather than having to fall back on one website’s opinion. Whichever option you choose, though, remember that you deserve to be paid what you’re worth–not just what your services are worth.

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Business Finance

How should freelancers be saving for retirement (is it even possible)?

(FINANCE) Adulting is hard, but retirement looms no matter your age – here are some ways to start squirreling money away so it’s less stressful later.

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retirement savings

Freelancing is a tenuous approach to employment, made all the more so by a profound lack of amenities usually offered by more stable arrangements – chief among which is a retirement fund. It can feel impossible, especially when your business suffers amidst a pandemic, so some of what follows can be ignored until the ship isn’t sinking, but don’t wait a minute longer than that – deal?

So there are several schools of thought regarding the best way to start saving and where you should put your money, but the bottom line is that, if you’re a freelancer, you should be allocating your own retirement funds. Here are some ways to do just that.

Before you can even get into the weeds of how to invest in retirement, you should have a parachute in case things go sideways. My Bank Tracker suggests starting with an emergency fund of $1,000, adding to it as you can until you have anywhere from 3 to 12 months of expenses covered.

This serves two purposes: ensuring that you’ll have the luxury of time if you need to perform an abrupt job hunt, and establishing how much you can safely put away each month without jeopardizing your business or standard of living (within reason).

Having a relatively large sum of money on hand for emergencies is always good, and if you never have to use it for the purpose for which you set it aside, it can supplement your retirement whenever you decide it’s time to cash in.

My Bank Tracker also suggests storing your emergency fund using a “high-yield” bank account, such as an online savings account, rather than sticking with traditional, low-interest savings options.

You also need to plan for taxes, which in addition to whatever your tax bracket percentage is, includes allocating 15 percent of your income to pay Social Security and Medicare. This means that you’re probably putting aside a pretty hefty sum (at least 30%) each month.

Once you’ve established your emergency fund and planned for taxes, you should have a general idea of what your wiggle room looks like vis-a-vis saving for retirement.

The actual saving part of retirement entails investment in a retirement account such as an IRA, Roth IRA, a 401(k), or a pension plan (referred to as a “defined benefit plan”).

Each of these account types has benefits and drawbacks depending on your situation.

  • A Roth IRA will allow you to contribute a certain amount each year, and you can usually set up an account quickly from a variety of online locations. The money that goes into a Roth IRA is post-tax, meaning you don’t have to pay tax on the retirement funds you pull out. Your income, however, can disqualify you from investing – if you earn above a certain threshold ($140,000 in 2021), you won’t be able to use a Roth IRA.
  • Other IRA options exist as well, each with a cap on how much you can contribute per year and varying tax requirements. For example, a traditional IRA account requires you to pay taxes when you withdraw the money, and there’s an upper limit on how much you can contribute.
  • A SEP IRA is similar, but the upper limit on investment is substantially higher – and you need to be self-employed (or an employer) to have one.

Nerd Wallet also points out that a 401(k) is a reasonable option for self-employed people who don’t employ anyone else, especially if you plan on saving “a lot in some years — say, when business is flush — and less in others.” 401(k) accounts allow you to put up to a certain amount ($58,000 in 2021) in each year pre-tax, and you pay taxes on withdrawals whenever you start pulling out money.

More eccentric retirement options exist as well. Taxable Brokerage Accounts let you invest in stocks and securities through a brokerage, and you’re able to use the money whenever you please – but you’ll have to pay taxes on your gains each year, which can become expensive in the long run.

And defined benefit plans are expensive and entail high fees, but they allow you to set up a pension with high investment opportunities as opposed to some of the lower-investment options.

Whichever option (or options – you can always invest in multiple accounts) you choose, make sure you’re saving for retirement in some capacity. And remember that these accounts represent exponential growth, meaning that the sooner you start saving, the better off you’ll be when you begin your retirement journey.

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