What are the most common investment mistakes?

Investing has been a useful tool to create one’s wealth and financial stability throughout history, it is however a journey filled with dangers and challenges. Modern investment, aka how we understand the stock market today, can be traced back to the development of financial markets in the late 17th century. The biggest milestone was the creation and establishment of the Amsterdam Stock Exchange in 1602. By visiting the stock exchange, investors could buy and sell shares in the Dutch East India Company. One of the biggest and more powerful companies at that time, was responsible for Dutch colonial expansion, trade, and dominance in Asia and the earliest example of a multinational corporation.

As long as markets have existed, people and experts have made mistakes. Understanding them and learning from the lessons of the past is crucial for anyone trying to get into the world of investments. Investing is a long-term financial journey that can be both thrilling and terrifying at the same time. Millennials and lately Gen Zs are starting to learn about investment mistakes and their unique financial needs. Being chronically online and the impact that pop culture has on our perception can be misleading at times, it’s essential to distinguish between fiction and reality.

Failing to plan

If you are Gen Z you might think you have plenty of time to plan for the future ahead of you. Don’t fool yourself, delaying investment and delaying your plans can hinder your long-term financial growth. Taking advantage of factors such as compounding works best when you give it enough time to flourish and bloom. Same goes for millennials, however, slowed down by loans or other financial burdens. Not starting as early as possible can result in missed opportunities for wealth accumulation and financial gains.

Neglecting diversification

Neglecting the need for diversification creates tunnel vision, and it might be difficult to take off the “tunnel” glasses once you’ve put them on. It can lead to huge losses, if your single investment fails you might end up losing everything you’ve invested, or more. Zillennials and Gen Zs are inclined to invest in companies they like and use, such as Amazon, Tesla or Apple. Knowing and loving the products and the companies you decide to invest in is great, but betting everything into a single stock is a risky strategy.

Millennials invest in both companies they know and companies they work at. People who receive company stock as part of their compensation package often end up relying on those and ending up with a concentrated portfolio. It’s natural to trust and be confident in your employers, but it’s still important not to put all of your wealth into one company’s stock.
Protect yourself, and diversify!

Ignoring risk tolerance

You need to assess your tolerance to risks and losses before making any kind of investment decision. Ignoring your comfort level will only bring anxiety and might end up resulting in poor financial choices. The thrill of high-risk investment can be enticing, especially to younger investors, but it is essential to have a solid basis before making any choice.

“Quick and easy” techniques such as day trading have been popularised in the last years by social media influencers and online coaches. They make it look like a simple and fast way to make money, accessible to everyone. However with fastness comes risk, and these kinds of high-risk strategies might not align with your risk tolerance, however “cool” influencers make it look.

Chasing short-term gains

Lottery winners and “lucky overnight millionaires” have been celebrated by pop culture and the media forever. Chasing quick wealth can lead you to total financial ruin, much like the characters in Breaking Bad, who ended up involved in illegal activities to make a quick buck.

Apps such as Robinhood and other trading apps have “gamified” investment, giving it a “play to win” feel that feels familiar to the younger generations. Gen Zs may be drawn to the excitement of short-term trading and how easy it is to take part in, but it’s important to understand that quick gains come with high-risks. We’ve talked about emotional investing and its risks before, ditch that and focus on your long term financial goals.

Millennials might be enticed by speculative investments like NFTs (Non-Fungible Tokens) or high-growth tech startups. And we’ve all seen how hard NFTs flopped, haven’t we? It is crucial to maintain a balanced portfolio to avoid losing it all in search of short-term gains.

Neglecting emergency funds

Building an emergency fund is not easy and any advice to “just make more money” might just feel out of space. But there is always some room for improvement. As you start investing, don’t forget to save some of the gains for the rainy days. Irregular income streams such as freelance work, that have become increasingly common in the gig economy, make the need for an emergency fund even more critical. Ensure you have enough saved to cover unexpected expenses, so that you don’t have to dip into your investments prematurely.

Conclusion

Investing is a rewarding journey that if done correctly will allow you to create a future for yourself. The allure of quick wealth, as movies, TikToks and Instagram reels often portray it can lead people astray and put you in danger of failure. Avoid the FOMO, diversify your investments and don’t bail into the latest investment trends without doing research. Ask for help, read and educate yourself as success in investing hinges on informed decisions and a solid financial strategy tailored to your unique needs and goals.

_{Disclaimer: This article has been distributed for educational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy, or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.}