Seven Deadly Sins of Investing

Here are the sins you can make when investing and what you can do to avoid them.
Man finding balance | Wealthify
Reading time: 8 mins

When it comes to investing, there are hundreds, maybe even thousands, of traps, bad habits, and poor judgements you can make or fall into. But we’ve found that most of them can be categorised quite neatly into the seven deadly sins. So, whether you’re new to investing or not, here are the sins you can make when investing and what you can do to avoid them.

 

The Sin: Lust
Lust doesn’t always take shape as the desires of the flesh. Lust can also be an unhealthy drive for wealth. Now with most types of investing, trying to make money is pretty much the whole point, but there’s much more to it than that. Just wanting to get rich often isn’t a healthy approach and could lead to disappointment, unnecessary risk, or simply investing without a purpose.

The easiest way to avoid falling for this sin is by knowing what you want to achieve and in what kind of time frame. It could be that you aim to invest £100 a month for the next ten years, or maybe you want to build up a deposit to buy a house within five years. Before you get started, it’s often worth choosing your goals carefully and understanding what you need to get there.

 

The Sin: Gluttony
There’s a fine line between having a clear investment goal and just wanting to get rich. It’s important not to treat investing like a ‘get rich quick’ scheme. If anything, you should think of it as a progression over time with a realistic financial goal in mind and don’t expect too much too quickly.

Gluttony is essentially the sin of over-consumption, which is a flaw you can come across at any point in your investment journey. You could simply put too much of your wealth into investments, rather than keeping money back for emergencies, or possibly even day-to-day expenses, or maybe even taking out loans in order to make investments. When this happens, it can be a slippery slope into debt, so it could be a good idea to get a strong understanding of your finances and only to invest what you can afford.

 

The Sin: Greed
Greed in moderation can be a good thing. After all, it keeps you wanting more and the chance to make your money work harder is probably what got you started on your investment journey. But when greed gets out of control it can be worse than lust and gluttony combined. You may get a taste for investment gains and start making riskier choices in order to try and make the largest possible profit. The other issue you can have with greed is not knowing when to sell as you’re always waiting for the new high to make a bigger gain.

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 this structure in place means that when your investments hit certain thresholds you take action – this can help you buy low and sell high without your desire for massive gains getting in the way or even potentially losing your position.

 

The Sin: Sloth
The world of investing is no place to be lazy, and unless you’re using a service like Wealthify, where all your investment decisions are made and carried out for you, falling victim to the sin of sloth can be disastrous. And there’s so many ways that it can be done. For example, if you’re dragging your feet to start investing then you may never actually begin, and the longer you put it off for the less time you’ll have to make potential gains. Plus, the sooner you start, the longer your money has to make gains – and if you reinvest those gains, then you can make profits on profits! That’s a little bit of mathmagic called compounding, and over the long run this can really build up.

But it isn’t just about when to start. If you’re managing your own investments, then it’s important to regularly check in on them and see how they’re performing and monitor the investment mix within your plan. 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 and you’ll need to rebalance in order to put things back the way they should be.

Another issue with just leaving your investments to run without checking in regularly, is that you won’t be able to take advantage of pound cost averaging. This strategy could help you to smooth out market bumps by buying investments at a range of different prices, this means that when there are big swings in the market, the impact is less likely to impact you. 

 

The Sin: Wrath
It can be all too easy to get angry when looking at your investments, for example, in a market crash when you see all your hard-earned gains start to slip. 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 can be driven by many things as well, from media hype through to being annoyed that you missed the boat on an emerging stock.

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 thought-out logical decisions that match your investment goals. And, if you can do this, you may be able to take advantage of opportunities that come up because others are acting irrationally.

 

The Sin: Envy
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. 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 Tesla or Netflix, 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 – Tesla for example went from $240.34 a share to $1,371.58 in just a year.[1] That’s more than a 470% return within 12 months – for you to achieve similar results, that share price would need to reach nearly $8,000!

You may be jealous of their earnings now, but the thing with ‘hot investments’ is that they could be a bubble, and bubbles tend to burst. All you need to do is look at the rise and fall of crypto currencies and or the bursting of the dotcom bubble in early 2000s to see how envy has driven impulse and irrational purchases before wrath pulled them down again.

 

The Sin: Pride
Confidence is a great thing, but arrogance is not. There are a lot of circumstances where pride can hurt your investment journey. For example, 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. Similarly, 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 Apple, right? The issue here is that you’re unlikely to hold a good mix of investments, and therefore the risk is increased.

Asking for help isn’t the end of the world, and it can go a long way in getting you on the right track. Services like Wealthify are here for a reason, helping to make investing easier to access, understand, and do right. Instead of putting all your money in one place because you think you know best, a team of experts use custom-built algorithms to help them carefully research, monitor, and analyse the market to find suitable opportunities. 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. Plus, if you want to be ethical and see your money do good, then we can do that as well with our ethical investment plans.

 

Staying on the right path
Not all of the seven sins are bad, in fact, in moderation they all have their benefits, but staying on the right path is key to having a successful investment journey. Removing emotion from investing can be extremely difficult, especially when faced with the fear of missing out or anger at losing your gains. Taking all the points above into consideration will help to give you an idea of things to avoid and watch out for, but ultimately it comes down to you and how disciplined you are.

 

Reference:

1: https://www.marketwatch.com/investing/stock/tsla

 

Past performance is not a reliable indicator of future results.

 

The tax treatment depends on your individual circumstances and may be subject to change in the future.

 

Please remember the value of your investments can go down as well as up, and you could get back less than invested.

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