Investing: expectations vs reality

What to expect when investing?

The art of investing is a concept that has fascinated people for decades. The allure of financial growth has drawn in people from all backgrounds and all genders, people who hoped to turn their money into a fortune or a safety net for the future.

However, the market is often filled with surprises, tricks, setbacks, and unexpected twists that the “average” person might not be aware of. In this article, we’ll explore the world of investing, shedding some light on interesting facts and offering you practical advice.

Some practical advice:

Be realistic

The right mindset is essential, while investing could bring you substantial returns in the long (or even short) term, it’s not an easy fix nor a get-rich-quick scheme. The market has ups and downs, and you’ll need to be honest with yourself on whether you’re knowledgeable enough to navigate it and patient enough to watch it grow and shrink over time.

Aim at diversifying your portfolio

Try to spread your money across different asset classes, don’t get fixated on one. Stocks, bonds, real estate, and cryptos are all valid alternatives that will help you mitigate and reduce the risk that comes from putting all of your eggs in one basket. Diversification will help your portfolio during market downturns.

Educate yourself

Knowledge is power, in your everyday life and when it comes to the world of investing. Take your time and learn about your options, market trends and all the strategies. Don’t dive into bonds after watching a couple of YouTube videos, try instead to attend seminars and read books.

Some practical examples of expectations vs reality in the world of investment

Expectation: quick Money – Reality: risk

You can’t get into investing with a “get-rich-quick” mentality. Many people believe that once they invest, they can just sit back and watch their money grow without having to follow the trend or put in any other effort. Successful investing requires ongoing monitoring, decision making, and adjustment. Markets change very fast, and the world of investing evolves over time, as your financial goals. If your goal is to maximise returns, you’ll have to engage actively and manage your portfolio as you go. Make informed decisions and rebalance it periodically. To avoid being disappointed and losing on your investments, it’s important to understand and have a full grasp of the concepts of risk and return.

Expectation: always coming on top – Reality: market efficiency

Another reality check: People believe that with the right timing and skills, they’ll always be able to consistently outperform the markets. While some have experienced success in this regard, by picking the right stock and timing their investments perfectly, the reality is that “winning” over the market over and over again is a challenging feat, and oftentimes an unrealistic outcome.

The markets are an oiled-up machine, and they’re efficient. Outperforming them requires exceptional skills, research often a fair amount of luck.

Instead of trying to beat the market, try to consider a passive investment approach, such as low-cost index funds or ETFs. You might find it more boring than other forms of stock investments, but they can offer competitive returns, lower fees and less stress.

Expectation: minimal effort – Reality: ongoing effort

As I have mentioned before, many see investing as a passive effort or a “get rich quick” scheme. If it was, would more people do it? Making an investment and sitting back is not enough, you probably won’t be able to relax and watch your money grow without following trends or making any effort. You’ll need to be aware of what is happening non-stop, monitoring and making the right decisions and adjustments. Markets are volatile and can change very fast, if you’re looking into maximising your returns, you’ll have to manage your portfolio as you go. You might even want to hire an advisor if you feel there are knowledge gaps that are keeping you back.

Expectation: linear growth – Reality: market cycles and fluctuations

Markets don’t grow linearly, however common might this expectation be. Financial markets go through cycles of steady expansion and contraction. Downturns and a struggling economy are to be expected after a period of strong growth.

Once you’ve realised this, you can prepare yourself for the market cycles by having a well-diversified portfolio that you’re sure can withstand the market’s built-in volatility.
Instead of trying to “control” or to learn to time the market, focus on your long term goals and push through market fluctuation. If you make the right decisions, you’ll see how the compounding effect can lead to significant wealth accumulation.

Expectation: diversification guarantees safety – Reality: the risk of over-diversification

We’ve talked about diversification, but let’s take into consideration the negative aspects of it as well: Emily, an investor not very keen on taking any risks, decided to spread her money and resources across many assets, thinking it would ultimately minimise risk and guarantee some form of payoff in the long term. However, she soon discovered that over-diversification can, and will, dilute returns. Her investments were stable, but they failed to grow faster than inflation. Costing her an expensive lesson.

Expectation: “I’ll ride the latest trend to success.” – Reality: hold your horses

Bob is an opportunistic investor, lazily skimming through the web looking for a hot trend to bet on. He has been jumping from one investment to the other, hoping the next “dogecoin” was going to be the next big thing. Despite his enthusiasm, he often found himself buying very high and selling low, missing out on the long term gains he could have made. His expectations of being able to “ride the wave” and “buy the dip” proved elusive and disappointing in the long run. Focus on a sound strategy, and you’ll be able to avoid the mistakes Bob did and avoid impulsive investments.

To sum it up, investing is a journey that can bring in huge rewards as well as gigantic challenges. Be true to yourself about your expectations and educate yourself constantly. Start small, start smart and remember that investing is not only a money gamble or a cheap thrill, it’s about securing your future and achieving your financial goals.