Welcome back to our continuing series, The 10 Beliefs. We’ve outlined the seven most common mistakes we see people make in planning and saving for retirement. In our last post, the seventh belief, we shared why talking about your financial situation with your partner or spouse is so important. Now we’re going to walk you through the eighth belief, you shouldn't follow fad investments.
If you missed a post, or would like to start at the beginning, scroll to the bottom of this post for a complete listing.
Belief #8 - You Should Not Follow Investment Fads
fad: an intense and widely shared enthusiasm for something, especially one that is short-lived and without basis in the object's qualities; a craze
From acid-washed jeans to Bitcoin, trendy things have one big thing in common: they burn hot and burn out fast. But what happens to an overpriced stock after the hype fades?
Too many investors make investment decisions based on the excitement around the latest and “greatest.” Instead of picking solid companies, or Mutual Fund managers, with proven track records, they allow the allure of “hot investments” to convince them. As a result, they don’t end up making the buckets of money they were hoping for. Instead, they end up buying an overpriced investment, and losing when they sell out in a panic after the hype fades.
But it’s not their fault. We hear it all the time, your boss’s brother’s best friend’s cousin’s wife’s so-and-so bought in to that trendy investment at the beginning and made a boat load of cash. But you must notice with these tales of success that it’s usually someone who’s so far removed from you that it’s impossible to verify. Beyond that, what you’re hearing about is luck, plain and simple.
Let’s look at a few of the trends… Last year we warned about crypto currencies about how extremely risky they were... but all anyone cared about was which ones to buy and how to buy them. That didn’t work out too well for most investors.
Now millennials are betting it all on pot stocks. Either they think it’s “the next big thing” or they believe the companies will “disrupt the system”. There are more Robinhood (finance app) users who are invested in pot stocks than are invested in Apple stock. Already an incredible amount of money has been lost but people are getting hyped again. This won’t end well.
So remember, when you’re investing you should avoid the “hot” stocks because the hotter something burns, the quicker it burns out.
Stick with investment options with positive track records. We use a Tailored Investment Strategy to pick investments that will help our clients achieve their financial goals. We pick funds with consistency versus their peers and clear thought process… Among other things.
We've walked you through the seven most common and costly money mistakes and eight of the things we believe you should be doing. In our next post, we're going to talk about getting control of your money. You can read that here.
You can also grab all of the mistakes and beliefs in a free download. Grab it here.