The subject or idea of investing can appear to be complex and confusing, and there are so called pitfalls to avoid. So how can we eliminate our mistakes such the “7 deadly sins of investing” so we can improve our chances of success.
Let’s look into what are considered the 7 deadly sins ?
- Hypocrisy – the failure to follow your own beliefs
- Gluttony – the illusion of knowledge
- Greed – the driven desire to increase your own wealth
- Sloth – being lazy and carefree
- Wrath – being uncontrollable and impatient
- Pride – the ability in your lack of belief of other’s
- envy – being jealous of other’s, who have status or already achieved success.
So lets look at each of them in greater detail !
Hypocrisy – the failure to follow your own investing beliefs.
The idea of investing may seem confusing and daunting to most people when starting out in the world of investing. They may appear to be sincere but you need to find your reasons why you are investing.
Ask yourself, what are you goals, aims, dreams for your financial future. What is your attitude to risk and what types of assets will you invest in. You have to invest for your own personal reasons or those that align with your spouse or partner. So try and stay in unison with your immediate family and act in accordance with these beliefs and traits.
Don’t rely on other people or 3rd parties to act in your best interest !
Nobody should more about your money than you, but unfortunately we don’t teach people how financial products work such as ISA’s, pensions, bonds, commodities etc.
Most people may receive an annual statement from their provider. Such as annual pension figure, but the vast majority of people just see an headline figure, but they don’t know what funds their money is invested in. So learn to get involved in your current financial scenario and envisage what your future may look it over the short or medium term.
Gluttony – The illusion of investing knowledge !
When starting out within investing, it may appear daunting or confusing as we don’t teach the required subjects to get people started. So they think it’s alien, or it can only be done by the very rich or wealthy. Or you need to use a Financial adviser to invest money to help you on your behalf.
Thanks to the power of the internet, there is an abundance of sources to provide information to you. So you can improve your investing knowledge. It may be in the form of Youtube videos, blog posts (such as this), daily or weekly newsletters via e-mail from institutions. Or it could be podcasts, investing videos, webinars on specific investing platforms. So don’t use it as an excuse that the world of investing is only for the elite, the information is freely available out there.
You just need to find it.
The aim when starting out is to keep things relatively simple, and then as your knowledge and level of investment expertise increases. Use it to your advantage to explore new and additional asset classes. When starting out, you may wish to invest in a simple ETF, then later on move onto to specific sectors or individual stocks or shares.
Remember – don’t run before you can walk ! You will no doubt make mistakes along the way, all investors will. But the aim is to limit those mistakes and losses and thereby improve your chances of success so you can reach your goals and aims over the course of time.
Think of investing as a marathon not a sprint – it’s such be seen as safe and boring and not a get rich quick scheme. Not matter what other people are peddling to you, if something sounds too good to be true, ignore it the alarm bells should be ringing. If you aren’t happy investing in a certain asset, take a step back you can always invest at a later date. When you are comfortable making that decision or once you’ve done your due diligence ahead of making that decision. Which you may regret making at a later date, as you have acted in haste.
Learn to stay open minded and level headed once you have made any investment decision, not even the greatest investors will get every decision right. But try to limit those losses. As Warren Buffett stated “stay within your circle of competence“, you will be rewarded handsomely over there longer period. Think long term and try to limit your immediate or rash decisions based on a whim or short term market sentiment.
Greed – An intense desire to get rich !
Greed in moderation can be a good thing, but only in small parts. Once you become attracted to it, it keeps you wanting more. The envious task and chance to make your money work harder is probably what got you started on your investment journey.
Once you have gained some initial investment gains, if lucky on your first few investment purchases. You will no doubt make rash and riskier choices in order to try and make and pursue the largest possible profit. The other issue you can have with greed is not knowing when to sell. In the hope or allure that you’re always waiting for the new high to make a bigger gain. Which may never ever materialise.
Investing with a style that’s right for you is extremely important.
Not only does it mean that you’re not taking too much or too little risk, but it provides guidance for making regular decisions. Having a structure, plan or purpose in place means that when your investments hit certain thresholds you take action. Or if you are losing money, set yourself a figure known as a stop-loss to limit any potential losses.
With regard to any profits or losses you see or encounter, it’s only becomes crystallised when you sell or release that asset. It’s only paper profit or loss until you make that actual decision. Try and remember why you invested in that asset in the first place, so unless the fundamentals of that business has changed, or management has been replaced or company has issued a profit warning or poor trading statement. Don’t act too hastily, you may regret it in later years. If you keep a cool head it could be seen as a great buying opportunity to buy additional shares at a lower price.
Remember to stay level headed and remain rationale, towards your investing beliefs.
Sloth – being lazy and somewhat carefree !
The world of investing is no place to be lazy, in that all your investment decisions are made and carried out for you. The illusion of falling victim to the sin of sloth can be a grave mistake. Which can be done in numerous ways.
A simple illustration: If you’re dragging your feet to start investing then you may never actually begin. As it may appear daunting and frightening at first as it is outside your comfort zone. It’s never going to be the best time to start investing, but take that first step. You won’t beat the market by trying to time it, whereby you jump in and out of the market. All this will do is create undue stress and excessive dealing fees and charges, each time you trade.
The longer you delay and put it off for the less time you’ll have to make potential gains. Plus, the sooner you start, the longer time your money has to make gains – and if you reinvest those gains, then you can make profits on profits!
Remember the magic called compounding, (considered the 8th wonder of the world) as over the long run this can really build up. Making a vastly different outcome to your financial future in later years.
But it isn’t just about when to start. It’s also about learning to manage and control your own investments. Get involved in them and it’s important to regularly check in on them. See how they’re performing and monitor the investment mix within your plan.
My own personal scenario:
I personally record my monthly end value for each asset at the end of month. As a comparison to see if I’m on track to meet my investing goals. The buy and hold approach is great, and allows for a bit more laziness, but you can’t just set and forget it forever. See, when your investments earn profits – such as dividends for shares or interest for bonds. It can skew the overall balance of your plan.
For example, say shares performed better than bonds. Then the balance of your plan may naturally shift towards holding more shares if you leave it to do its own thing. When this happens, you can slip out of the investment style that’s right for your needs. You’ll need to rebalance in order to put things back the way they should be. May a point to rebalance every quarter or on an annual basis. But don’t drive yourself mad looking at the market every day. You will just become obsessed with short term market noise and sentiment.
I have also learned to automate my investing contributions, so I add into my ISA, and personal pension (SIPP) on the 1st of each month. I will then invest into a appropriate stock or fund, through the power of pound cost averaging. By doing so, it will smooth out the buying price of the funds and shares over the course of the year.
Remember, no 2 days in the market will be the same their will be good days and bad days, Where you will see a sea of green (profits) or red (losses) on a screen or laptop. It’s how you react to them over the long-term that matters.
Wrath – being somewhat uncontrollable !
It can be all too easy to get angry when looking at your investments. Try to remain level headed and rational, some things are out of your control. You only have to look at recent years to highlight these factors. The markets have reacted badly during the COVID pandemic, the initial outbreak of the Russia / Ukraine conflict.
Bad news sells as they state on a regular basis, so the market may react in a negative way initially but it will always recover over time. The news companies don’t tell you have it may receive rover the following weeks or months.
A short term market crash, may result in your portfolio showing as sudden loss and your so called profits or hard-earned gains have been wiped out. This can cause investors to sell their investments, angry or scared with the way things are looking to pan out. But emotional decisions like this rarely produce positive benefits. It may even put investors off in the long term, based upon a one-off negative experience.
Other factors could include media hype for frenzy. These could be interest rate decisions, poor economic figures or outlooks, budget events, change in government party running a country.
Instead of being mad that you missed out on buying shares when they were cheap, or worrying about what the market might do in the future. Try to stay calm and make logical and sensible decisions that match your investment goals.
So try to avoid other investors, what may be considered the herd mentality. By doing so, you may be able to take advantage of opportunities that come up because others are acting irrationally.
Pride – Refusing advice from others !
Investing confidence can be a great asset to you, but arrogance is not. There are a lot of circumstances where pride can hurt your investment journey.
Trying to go it on your own without having the knowledge, experience, or time to research under your belt can make investing a difficult and daunting process.
Likewise, if you think you know it all then you may put all your money in a handful of shares in companies that you want to invest in – it sounds pretty cool to say you’re a shareholder in a niche or specific company to impress others.
But it would be a wiser investment decision to hold good quality growth companies that will reward you over the long term whilst you are trying to invest or build wealth. The issue here is that you’re unlikely to hold a good mix of investments, and therefore the risk is increased. You may want to spread your risk by diversifying across a free companies, sectors, geographical regions or through a smile low cost ETF.
Asking for help isn’t the end of the world, and it can go a long way in getting you on the right track. If you aren’t happy making them doing so do so as a collective or invest in a pool with other investors similar to you.
You’ll still have full control of your investments, choosing an investment style that is right for your needs, and being able to invest your money however you want.
Envy – becoming jealous of others that may have achieved success !
Envy can be a difficult thing to deal with but comparing your investment performance to someone else’s doesn’t always give you the full picture. Investing should be based on your own financial situation, attitude to risk, how much are you willing to invest, what are your long term investing plans. There are so many variables to consider that it’s extremely difficult to get a like for like comparison – even if you invested the same amount on the same day!
Or maybe someone you know was an early investor in a company like the so called magnificent 7 (which dominated the US Tech sector at present) and has seen the price of those shares increase massively. Trying to chase these hot companies after they’ve become popular can be incredibly expensive and are unlikely to give you the same returns. You will already missed that boat, and that ship has already sails.
You may be jealous of their earnings now, but the thing with ‘hot investments’ is that they could be a bubble. As we all should know, bubbles ultimately burst in the long run. It’s easy to invest with hindsight, but all investments products will carry warnings that past performance isn’t guaranteed and may not be replicated in future.
Over the past few years, there have been some notable examples such as the tech boom, and the Dotcom bubble. Plus the all too often boom and bust cycle with cryptocurrencies, which seem to have great rises and great falls over a short period of time.
Try and avoid any short term tipsters, the latest investing fads, the people selling those products have normally bought at reduced levels. By the time the general public hear about it, the price has usually been inflated. Another example is every time I listen to local radio there’s an advert stating that we will buy your unused gold, as the price of gold has gone galactic.
You have all heard about FOMO (the fear of missing out), which is a classic situation relating to bubbles. Which is peddled by numerous people promoting so-called get rich quick schemes.
So if you are going to invest, understand the reasons why and think long term. The market will have good and bad years, but over the course of time the market has produced an average return of around 8% year on year. It may not set the world alight, but it’s a far better return that keeping cash in a bank or building account. By taking this course of action you will become rich in the long term, if you create a plan and invest regularly. Within a tax-free pension wrapper such as a personal pension or ISA.
Remember:
Hopefully the above blog post has given you some ideas and an overview to improve your investing knowledge. If you found this blog post useful, please feel free to check out my other posts on https://moneyminted.co.uk which covers saving, investing, pensions and investing books that I recommend. So you too can improve your financial or investing knowledge and can ultimately reach your investing and financial goals and dreams.
Be the first to reply