The financial world is evolving incredibly fast. A wild and emotional 2021 introduced meme-investing, new crypto assets, social media influencers, and a rabbit hole of many more innovations riddled with excitement, uncertainty, and fear. Unfortunately, the fear of missing out makes it easy to be pulled into these trends. That is why it’s crucial, now more than ever, to keep your eyes open to protect yourself from making less-than-ideal investment decisions. Here are a few dangerous financial trends to avoid in 2022.
1. Over concentration. We all love Tesla, bitcoin, or even some Dogecoin. The returns on these investments have been remarkable, and future speculative gains irresistible. So, what are investors doing? They’re investing as much as possible (including borrowed money) into these investments hoping they’ll keep knocking it out of the ballpark, and they’ll soon be millionaires! After all, stocks only go up, right?
Overconcentration feels great when it’s working, but it can be absolutely devastating when it starts going in the wrong direction for you. It is not a bad move to invest in assets such as the ones listed above, but make sure you stick to a process. You don’t want to hold more than 5% of a single security in your portfolio. Diversifying is key.
2. Market fear-mongering. All financial news headlines seem to be warning of an impending market crash in 2022. Of course, this is nothing new; they’ve been saying the same year after year. No one knows for sure when a market downturn is going to happen, but that isn’t going to stop the media from trying to call it. As they say, even a broken clock is right twice a day.
The age-old mantra, “if it bleeds, it leads,” has never been more true in the media than it is today. Don’t make investment decisions based on fearful news headlines. Remember what you know to be true. Markets go up and go down. It is normal and natural. While it is OK to stay up-to-date with market events, beware of the danger of media overconsumption.
3. Annuities. A volatile market is the perfect environment for sales representatives to push annuities. They will always have a great sales pitch around investing in a product that has a guaranteed return and the amount will never go down. That sounds great, right?
What we know is that annuities are very complicated products that are more often sold than bought. They are typically very expensive products with complicated contracts that a typical investor wouldn’t understand. In some very specific circumstances, annuities can make sense in a portfolio, but always make sure you understand what you are buying.
The above trends seem to be taking root in the news media and among investors. Please don’t fall for any of them. Investing is a journey and should never be driven by greed or fear. Always remember that the markets go up and down; having a certain amount of cash can be very powerful, and putting all of your eggs in one basket is a sure way to fail.