A few weeks ago, I managed to win a soft toy while playing an arcade game.
We already have an arsenal of these teddies in the loft, but there’s just something very thrilling about trying to win one.
The machine had a little sign: ‘This is a game of chance. You may not win every time.’
It’s a game of skill! I told myself. Winning one was down to my skills and abilities. However, the truth is, if you play these games for long enough you will hit the jackpot eventually.
The same can be said for the stock market.
Over the last four weeks, my portfolio has increased by 7.27%.
Unfortunately, I can’t put my stock market successes down to intelligence or skill either.
Instead, just like the arcade games, the longer you play and the longer you stay invested, the more you ‘win’. It’s a test of consistency, patience and a willingness to repeat monotonous tasks over and over again.
And yet, while amusement arcades are designed for people looking to have a good time, the same cannot be said for the stock market.
With the rise of investing apps, Wall Street subreddits and TikTok stock tips, many people are starting their investment portfolios looking for a thrill. But is excitement and the stock market a good combination or recipe for disaster?
Here’s the truth about the stock market and some of the most common mistakes made by beginners.
Investing for excitement
It’s only natural to feel excited when you take your first steps into the world of investing, but that feeling shouldn’t last.
What matters most is how you respond when the novelty inevitably wears off. Do you keep investing or do you give up?
Within a few months of making your first investment, your payments should be automated and ticking along in the background while you focus on your career, passions and social life.
The longer you leave your investments alone, the better they’ll grow. Give compound interest time to work its magic.
Checking your portfolio every day
Thanks to commission-free investment apps, it’s never been easier to check your portfolio.
It’s only natural to get carried away whenever you look at your account, but this is how bad decisions are made.
When your stocks are in the green, you’ll want more of them. You might pour money into the same investments, assuming they’ll continue to go up.
When they’re in the red, you might panic sell. We’ve all seen a stock plummet in value and feared the worst.
If anything, this is the opposite of what you should be doing. It can be hard to take the emotion out of it, especially if you’re checking your account regularly.
If you have the discipline to buy your stocks and forget about them, that’s when you’re onto a winner.
Trying to be an expert
Many people procrastinate and wait years to get started. They avoid investing because they’re afraid they don’t know enough. But the truth is, you don’t need to be an expert to invest.
Sometimes, the less you know the better. Getting too involved with the stock market can make you obsess over your portfolio to a detrimental extent.
Admit to yourself that you don’t know what’ll happen in the short term, no matter how many books you read or podcasts you listen to.
We have clients who’ve built multi-million-pound portfolios by helping them admit they don’t need to know anything about what happens inside the stock market.
You don’t need to learn about electric cars, renewable energy and medical marijuana. You don’t need to predict which industries will thrive in future. Just implement a strategy that’s right for you and stick with it.
Trusting the wrong people
While we’re on the topic of expertise, be wary of giving money to anyone on the internet who calls themselves an investing expert.
If they’re giving financial advice, they should have formal finance qualifications and insurance.
Unfortunately, there are a lot of non-advisers out there who make more money from teaching people how to get rich from the stock market than they make in the stock market themselves.
The people who know what they’re talking about tend to talk about it the least. Those who know the least talk about it all the time.
Facebook groups and Reddit threads are filled with people who claim to know which stock will reach the moon by lunchtime. The truth is that none of us know that for sure - not even Warren Buffet or Mystic Meg.
Even financial planners can’t predict the future. What we can do is help you make smart investments that are tailored to your budget, goals and personal risk tolerance.
At Barnaby Cecil, our WealthMap service can help you plan your future as best as possible.
If you’re at a crossroads in your life, we can help you work out which road to go down. Wondering whether to buy a house now or wait five years? We’ll work it out.
Want to retire early? We’ll do the sums to make it happen.
Want to give more money away but unsure how to do it tax-efficiently? We can help with that too.
Please get in touch to learn more about the service and plan your future.