Are Trendy Investments a Bad Idea?
Are Trendy Investments a Bad Idea?
Avoid falling for trendy investments by investing in what you understand, investing meaningfully, and focusing on achieving your financial plan.
Once upon a time, only a select few had the privilege of accessing most of the investments we have today. Until the 2000s, the Main Street investor had to work exclusively with a broker or advisor to buy their everyday blue-chip stocks. With the evolution of technology and the internet, investors can now open accounts, fund them, and trade within the hour from the convenience of their phones.
We’ve come a long way from checking daily stock prices on the radio or calling your broker to get the latest ticker reading. Today, you can check the price of a stock online in seconds and access the news cycle 24/7. We have platforms for every investment idea, both good and bad. For retail investors and the industry, this was a game-changer. But change can be costly.
A young generation of investors has grown up in a different investing culture, where it’s easy to fall for what is trendy/popular. This culture comes with a hunger to chase the next disruptive investment opportunity, and do-it-yourself (DIY) investors are all for it. Unfortunately for many, it’s easy to believe the loud headlines you read on the internet. Although sometimes there may be good opportunities for you, the odds that your investments are aligned with your goals if you’re jumping between trendy investments are lower.
The media often highlights those who participated in massive wins. Too often, those who suffered tremendous losses were left out of the limelight. There is a skewed narrative and people often forget that there is someone on each side of a trade, and if one party is winning, the other is losing.
5 Tips to Help You Avoid Falling For Trendy Investments
1. Invest in what you understand.
You don’t have to be an expert or financial analyst, but your decision to invest your hard-earned money should be in something that you comprehend, even if only on a basic level.
If you can’t explain your investment and how it works to a family or a friend confidently, it may not be for you. It’s never fun to suffer a loss in your investments. However, suffering a loss without knowing why hurts even worse.
2. Invest in something meaningful.
There is a lot of noise out there. Too often, one can find investments that are only performing due to trend inertia. If you’re going to invest, invest in something you believe in beyond a fad. If you believe in the vision, you are more likely to hold on long term through the volatility and uncertainty.
If you only believe in the trend, the chances that a new one comes along in a few weeks are very high.
3. Invest in line with your risk appetite.
It’s no secret that the cryptocurrency and NFT markets are as volatile as investments come (using what was trending a few years back as a reference). Investors tend to pull their high-risk assets first during times of uncertainty. Therefore, these types of investments typically suffers more significant swings in adverse market events.
When the markets are up, they are up big. But when they are down, they are down big, too. If you can barely stomach the ebbs and flow of the market, think twice about entering digital asset classes.
4. Invest in line with your financial plan.
Deciding to invest in digital assets takes careful planning and strategy. It’s essential to know how much of your overall portfolio could be allocated to these investments without jeopardizing your confidence in your long-term financial success.
At the end of the day, a financial plan gives you peace of mind that you’re as on track as possible to meet your life goals and those of your family. If you don’t have a financial plan, consider investing in that crucial step towards building your wealth. Your investment strategy should align with your personal and long-term financial goals. Plain and simple.
5. Invest in the boring.
At the end of the day, your good ol’ fashioned stocks and bonds have a proven track record of helping everyday people achieve their financial goals. Stocks are tied to the value of a company and its ability to generate revenue now and into the future. Between innovation and inflation, we can lay our hat on the fact that stocks will appreciate over the long term. It’s measurable.
Going back to our recent example, cryptocurrency and NFTs are more speculative today. A typical factors can affect the price of these assets, making them difficult to forecast over the long term.
If you’re investing in cryptocurrency, NFTs, or another alternative asset that is currently “trending”, do so with care and attention. Please ensure that your financial goals are clear and you completely understand the downside risk. Digital asset classes are still struggling with a lack of regulation and oversight. It is still a mystery what the long-term tax implications will be when these investments become more and more mainstream.
The Bottom Line of Trendy Investment Selection
If you don’t understand what you are invested in, consider working with a financial advisor who can break down complex concepts to a level that makes you feel comfortable with your investments. An advisor will be able to guide you in determining what to invest in, how much to invest, and help you stay on track as you work towards achieving your financial goals.
Be cautious of self-proclaimed gurus in this space. Please remember, when you see or hear about someone winning big in any investment, that typically means the opportunity is already gone. Don’t chase the trend. Chase your goals.
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