Investing is everywhere and is now more accessible than ever, however people often fail to build wealth using investing. In this article we will explore the causes and reasons why people are failing at investing.
Investing is allocating money through stocks, property bonds and much more in the expectation to make a profit in the long-term. Investing has never been easier due to unprecedented access. Mobile apps and online brokers make buying assets instant and affordable. Furthermore, investment brokerage services advertise investing as a way to make income passively however, doesn’t talk about the high chances of making a loss especially without experience and education of the topic.
There are many ways in which people fail at investing, this is primarily due to low performance of the asset or stock they invested in, lack of knowledge on investing or poor time in the market. Many individuals start investing with no prior knowledge. Traditional schooling rarely covers concepts such as asset allocation and the process of investing into stocks. Without this knowledge people often feel loss when investing and do whatever feels right for them. Furthermore people think investing is an opportunity to become rich quickly. They think of investing as a lottery ticket without knowing the risks which results in them losing money. Lastly, many investors have poor diversification. Many investors only invest into 1-2 or assets and stocks and not a range. If a specific stock or asset crashes then the total portfolio crashes.
Figure 1: The graph above illustrates some of the most common reasons investors fail to achieve long-term investment success.
There are many ways which investors can improve. One way is to conduct research before picking stocks and assets to invest in. By reviewing financial statements and evaluating business models you can see whether the asset or stock has a good performance history and if it has a strong potential to continue to perform well. Furthermore it is important to practice investing. Using a demo account or small amount of money can help you learn the basics of how to invest. Furthermore it is crucial to have a diverse portfolio of assets and stocks. This is in case one stock performs poorly there is a chance that the other stocks can makeup for the loss.
In conclusion, despite investing being a risk of losing money, it remains one of the most effective ways of profiting in the short-term and long- term if you have good timing and knowledge of fundamentals. It is always important you research what you are going to invest in beforehand.
References & Further Reading
- Financial Conduct Authority (FCA) – Financial Lives Survey (2024) – Used for research on UK investing behaviour, financial capability, consumer confidence and investment decision-making. Financial Lives Survey
- Financial Conduct Authority (FCA) – Diversification – Used to support the discussion on portfolio diversification and reducing investment risk. FCA Diversification Guide
- MoneyHelper – A Beginner’s Guide to Investing – Used for definitions of investing, asset classes and long-term investing principles. A Beginner’s Guide to Investing
- MoneyHelper – Thinking About Investing? Make Sure You Understand the Risks – Used for information on investment risk, long-term investing and common mistakes made by beginner investors. Thinking About Investing? Make Sure You Understand the Risks
- Vanguard UK – An Introduction to Diversified Portfolios – Used to support the discussion on diversification and portfolio construction. An Introduction to Diversified Portfolios
- Vanguard UK – The Power of Diversification – Used for research on why diversified portfolios improve long-term investment outcomes. The Power of Diversification
- Pexels (Photo by AlphaTradeZone) – Hero image.