Yahoo Finance 4 Biggest Investing Mistakes That Are Making Other People Rich
In the 1920s, Charles Ponzi promised those who invested in his mail coupon company could expect a 50% return in months. Ponzi didn’t make people rich, but he did leave us with his namesake, an investing term known as a Ponzi scheme. While Ponzi schemes aren’t new, there are other investing mistakes that people are making thanks to quick online access to content that’s hard for even the Financial Industry Regulatory Authority (FINRA) to keep track of.
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Here are the biggest mistakes that are making other people rich.
Following Inexperienced Investors Found on Social Media
One of the biggest investing mistakes you can make when you’re investing is following inexperienced investors on social media. “In the age of quick information dissemination, it’s tempting to follow the advice of self-proclaimed experts who promise quick and substantial gains,” said Job Morgan, CEO of Venture Smarter. Seasoned investors understand that when it comes to investing, you’re in it for the long haul and not what makes you money now. On average, it takes seven to 10 years to see a substantial return on investments.
Real Estate Investment Coaching
If you are willing to pay someone to coach you to make investment decisions, look out for real estate investment coaching scams. A scammer (finfluencer, random real estate agent, someone with no professional training or certifications) will promise to teach you their strategy to make money through real estate by investing in multiple properties and offering shady tactics to secure them that are mostly illegal. The scammer will then charge you an extravagant fee to become a client and share success stories that can’t be verified. Real estate is not a get-rich-quick scheme with no losses and only profits.
“If you want help investing, you are much better off working with an advice-only or hourly registered investment adviser who can customize your advice,” said Kelly Palmer, founder and chief wealth officer of The Wealthy Parent, a fee-only financial planning firm located in Chicago. If you do go this route, make sure you can verify their licensing and check their rating with the Better Business Bureau.
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Buying Online Courses
Inexperienced investors aren’t just found on social media. They’re also on the web, ready for you to buy a course that will supposedly make you rich — for example, signing up for a finfluencer’s free or inexpensive investing course. “When a product is free that means you are the product. Often, these courses are just an avenue for the ‘teacher’ to earn affiliate income by recommending certain subscriptions and investing platforms,” Palmer said. It’s also a way to profit from a pump-and-dump investing scheme that would make Mr. Ponzi proud.
Palmer also reminds you that not all investments are created equal, persuaded into investing in ETFs without knowing how to trade or paying for a budgeting app that doesn’t make any sense.
Another type of course finfluencers sell is one that promises to teach you how to work for yourself, typically as an entrepreneur. While someone can help you figure out an idea, there are no guarantees for someone working for themselves, especially income-wise. The Chamber of Commerce points out that 18% of small businesses fold within the first year and 50% of companies last just five years.
Herd Mentality
Another mistake to avoid that can make others (but not you) rich is being an active participant in herd mentality. A few examples of herd mentality are the current housing bubble, panic buying during COVID-19 and when Game Stop crashed the Robinhood app. Morgan said, “When everyone rushes to invest in a particular asset or market segment due to hype or fear of missing out, it often inflates prices artificially, creating a bubble that eventually bursts.”
Savvy investors do their research, check annual reports and look for trusted financial professionals. Just as Palmer shared, it’s also important to remember that not all investments are a good fit for you.
It’s essential to keep an eye out and always take an investment strategy that seems too good to be confirmed with a grain of salt.
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This article originally appeared on GOBankingRates.com: 4 Biggest Investing Mistakes That Are Making Other People Rich
