Cannabis stocks blaze ahead: Here's how the headlines can affect your money

Market indexes snap a winning streak, cannabis stocks surge, and many young investors have gotten too comfortable with risk. Here's how the headlines affect your money.

The S&P dipped from a record high Tuesday, falling 0.1% to snap a 6-day winning streak for the broad stock market index. The Dow sank by less than 0.1%, while the tech-heavy Nasdaq managed to eke out a 0.1% gain, with the index reaching a record-high close.

Indexes had an up-and-down start Wednesday morning, with small pullbacks in major tech stocks erasing early market gains. 

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Investors have been betting big on the cannabis industry, which could see a boost from legislation easing restrictions on weed firms. Shares in cannabis companies continued rising on Tuesday. The ETFMG Alternative Harvest ETF, which holds a portfolio headlined by major Canadian growers, logged a 13% gain on the day, bringing its year-to-date return to an eye-popping 101%.

Two Canadian firms enjoyed a particularly good day: Canopy Growth, which reported better-than-expected revenues, and Tilray, which announced a deal with Grow Pharma to import and distribute Tilray's medical cannabis products in the U.K.

In a joint statement earlier this month, Senators Cory Booker, D-N.J.; Chuck Schumer, D-N.Y.; and Ron Wyden, D-OR indicated that passage of comprehensive cannabis reform will be a priority of Democratic congressional leadership. Experts say that U.S.-based cannabis firms are likeliest to benefit from such legislation. The AdvisorShares Pure U.S. Cannabis ETF, which tracks so-called multistate operators, is up 45% in 2021.

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More young retail investors have begun dabbling in stock picking. "Just a few years ago," Christine Benz, director of personal finance at Morningstar, told Grow, conventional wisdom held that "these young investors are so risk-averse." Now, though, "we're sort of at the opposite extreme."

Investors looking to make quick profits by day trading are putting themselves in a precarious position over the longer term, experts say, since owning a narrow band of individual stocks exposes your portfolio to major losses should any single company tank. If you're getting started investing, the smarter, safer move is to own a portfolio of diversified, low-cost mutual funds or ETFs.

Risk tolerance measures how much loss an investor can withstand without wanting to make changes to their portfolio. Investments that are riskier than you're comfortable with can lead you to make damaging decisions when markets get jumpy.  

Although the daily news can have an impact on your wallet, remember to take a long-term outlook when it comes to decisions on spending, saving, and investing.

 More from Grow:

• Markets hit new highs, and Congress decides on eligibility for $1,400 checks: How the headlines can affect your money
• Marijuana investors: How the 2020 election has changed the outlook for cannabis stocks
• Young investors have gone from ‘risk averse’ to ‘the opposite extreme,’ expert says: Here’s the better way