If you’ve ever done an internet search for investing tips, then you’ve probably stumbled on paid stock and investing 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 far easier for people to create and market these newsletters.
Do these newsletters really help investors and result in the returns they promise if you follow their advice? Well, no. According to the experts we spoke with, these stock newsletters have unproven results and encourage an investment strategy that has shown to fall short of more stable investment strategies, like a long term buy and hold strategy. In other words, investing in individual stocks doesn’t see the same returns as say investing in an index fund. It’s typically hard to time the market and index funds take the guesswork out of your investments.
Are you wondering whether paid stock newsletters are worth the cost? Keep reading to learn more about how these newsletters work, what they cost, and whether they’re really worth the price.
What are Investing Newsletters?
An investing newsletter is a compilation of stock tips, market analysis, and other investing recommendations. These newsletters usually operate on a subscription model, where you pay a certain amount per month or year to receive the newsletter.
“Historically, investing newsletters were actual letters sent in the mail at regular intervals, typically every month,” said Nate Tsang, the founder and CEO of Wall Street Zen. “You’d send a check to the writer to be put on the list and get stock recommendations that you’d then pass on to your stockbroker.”
But today’s stock newsletters aren’t all that different. Instead of sending a physical check to get 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 investing 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’s important to note that there’s a big difference between paid stock and investing newsletters versus financial media and educational sites. It’s 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 newsletters generally recommend specific stocks and stock-picking strategies.
How Much Do They Cost?
The cost of investing newsletters can vary significantly. Some may cost as little as $100-$200 per year, or a monthly fee of less than $20. On the other hand, some newsletters cost more than $1,000 per month.
You may also stumble upon free investing newsletters. And while the price tag may make these newsletters desirable, you should be just as wary — or more so — of free investing newsletters, especially if they recommend specific stocks.
Ultimately, the creators of these newsletters are making money somewhere. If they aren’t making money from their subscriptions, they could be doing so in ways that are even more harmful to investors. For example, the U.S. 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” schemes or scalping where the newsletter promotes a stock to boost the price, only to sell their own shares after the price has gone up
- Undisclosed conflicts of interest where the newsletter has a financial incentive to promote certain stocks
- False performance claims where a newsletter touts a positive track record, but is lying about their results
What Information Is Included in These Newsletters?
Paid stock and investing newsletters typically provide stock market tips, often in the form of specific stock or industry recommendations. They may also provide stock market analysis to give you some greater insight of either what’s going on with the market or what they expect to happen with the market.
“Some provide deep insights and rigorous reasoning; others are nothing more than marketing pitches,” Baker said. “The goal of these newsletters is to provide sufficient valuable information the subscribers will continue to subscribe.”
As we mentioned, the information in these newsletters is very different from what you’d receive from a financial media or educational resource. Websites and outlets like the Wall Street Journal, Morningstar, and others provide stock market insights and educational resources. Rather than making market predictions, they’re more likely to explain what’s already happening in the market and describe what that means for you as an investor.
While the distinction between recommendations and education may not seem significant, it is. Paid stock and investing 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, aren’t likely to recommend specific trades. Instead, they provide you with information that can help you make informed decisions, and they never promise any sort of results.
Are Paid Stock Newsletters Worth the Cost?
Whether they cost $5 per month or $500 per month, paid stock and investing newsletters generally aren’t worth the cost for a few different reasons. Stock-picking newsletters encourage an investment strategy that has been proven to not be the most effective.
“There is significant research showing that markets outperform stocks,” said Dr. Guy Baker, a CFP, Ph.D., and the founder of Wealth Teams Alliance. “Five Nobel Prizes have been awarded for research supporting this view and many additional papers demonstrate how much more sustainable and predictable markets are than trying to find the right individual stocks.”
Data has consistently shown that active inventors and advisors fall short of the overall market more often than not. And while an advisor may beat the market in certain years, it’s a difficult feat to replicate.
Instead of trading individual stocks, most investors — especially beginners — are better off opting for a buy-and-hold index fund investment strategy. By investing in index fund mutual funds or exchange-traded funds (ETFs), you’ll end up with a well-diversified portfolio that’s likely to beat out actively-managed funds.
It can be tempting to invest in individual stocks when a newsletter author touts a record of consistently beating the market. But there are a few things to consider here. First, just because a newsletter author says they consistently beat the market doesn’t mean they do. After all, there’s no one regulating these newsletters to ensure they’re honest. And just because someone has beaten the market in one year doesn’t mean they’re likely to do it again.
“The caveat about those paid newsletters is the same as all stock 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 get started investing without paying for costly stock newsletters. Financial experts generally recommend a well-diversified portfolio of index mutual funds and ETFs. By investing in just one of these funds, you can gain exposure to hundreds — or even thousands — of companies in one investment. And with just a few funds, you can create a well-rounded portfolio.
As our experts point out, active investors and advisors have a proven track record of falling short of overall market returns. Rather than reading paid investing newsletters and picking individual stocks, you’re better off opting for a passive investing strategy of market index funds.
The other benefit of this investment strategy is that it is affordable to get started. These funds generally don’t have trading fees, and your only cost is a small expense ratio that’s 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 make the most of your investment returns, prioritize tax-advantaged accounts. You’ll save thousands of dollars in taxes over the life of your investment account. And by starting early, you can secure yourself a secure financial future without the stress of picking individual stocks.