There has been a significant shift in the ability of the average consumer to buy and sell securities. When I first entered the financial services industry, the concept of a discount brokerage was just taking hold. Back then, the prospect of standardized low-priced stock trading was new and exciting. The financial markets became more democratized, meaning the average investor could make investments with a couple of keystrokes as the Internet became the primary place to execute investing actions.

At the same time, the market increased in volatility with the addition of the dot com bubble and burst in 2000. This process pushed a lot of casual investors out of day-to-day trading in the market. Many believe the pandemic coupled with free trading platforms has given rise to a new crop of retail investors. These new investors have not experienced a prolonged downturn in the market while witnessing certain stocks like Tesla TSLA +0.5% produce unprecedented investment returns.

Am I missing out?

When some investors are doubling and tripling their portfolios almost overnight, it’s no surprise that our coaching service is hearing from investors worried they are missing out. Should you try investing the money you have set aside for your next home in a hot stock? Should you take the stimulus money you were planning to use to pay down your student loan and buy crypto currency?

In order to make these decisions, a framework is helpful. One such framework is to break up your money into three distinct buckets: saving, investing, and speculating. This framework has helped me make decisions about where to deploy my capital over the years and has left me with few investing regrets going all the way back to the dot com bubble up until now.

Saving

If you intend to put away money for a goal that is five years or less away, it makes sense to use traditional savings tools like checking, savings, CDs, and money market accounts. The most common push back I typically hear about this suggestion is the fact that savings tools do not earn very much. That is true, but there is very little investment risk on these types of accounts. While recent history has shown the stock market to be very resilient, the market has also shown the propensity to have significant drawdowns with very little warning. Keep in mind that the V shaped recovery we saw in 2020 was unusually fast from a historical point of view.

Imagine arriving at your goal with 20% of your investments not there due to a sudden downturn. Also consider not knowing exactly if or when those funds would return. For short-term goals, better safe than sorry.

Investing

For long term goals, stock investing has proven to be a successful solution if certain rules are followed. First is finding an investment strategy and sticking to it. The more widely accepted strategies include concepts like measuring risk tolerance and diversification.

This often means less actual stock trading. In my experience, investment activity like trading stocks does not actually produce more returns consistently. Once you lock in that investment strategy, the key is to only make the necessary changes to stick to it. For instance, if you complete a risk profile questionnaire and determine the best portfolio for you is a 60/40 stock to bonds portfolio, trading to rebalance that portfolio periodically is a necessary activity to stick to your investment strategy.

Speculating

Once your short-term goals are met by short term savings and your investments have you on track to reach your long-term goals, then some investors have another level of investing they are interested in. The difference between a long-term investment strategy and speculative investing is the fact that the history of speculative investment strategies shows a high level of potential return but also high risk. If you feel the need to participate in speculative investment strategies, here are few things to consider:

• Does making a risky investment put your long-term goal at risk?
• What is your downside risk? Is your risk in this investment limited to just your investment or are there additional exposures like penalties and taxes?
• Have you explored a method to hedge against losses?

Have you set a metric for a minimum level of success? Specifically, how much are you willing to risk before you walk away?

The democratization of investing has many upsides. These include lower fees, increased convenience and simplicity for those who want to access the stock market. By having a good framework to navigate this environment, you are more likely to avoid the pitfalls that still exist in the investment markets.

This article was originally published By Cyrus Purnell, forbes.com.