May 23, 2024  | Tags: investing, strategy

Our insights

It takes a great deal of wisdom, experience and willpower not to be swayed by the lure of short-term investments.

Shiny ‘get rich quick’ schemes are much sexier than those ‘invest for the long term’ tips.

Who wants to wait forever?

Especially in this day and age where we’re not used to having to wait for anything.

And it’s that very angle that prays on the weaknesses of so many of its victims.

In truth, hyped up, low detail short term investment schemes are usually only a success for the fraudulent maker of false promises.

By better understanding the human psyche, we can begin to recognise signs and signals that should raise red flags when investing.

Let’s take a closer look at the reasons why people find short-term investments so alluring and impossible to resist.

Instant gratification bias

It is a natural human trait to seek instant gratification, whatever the pursuit.

The same philosophy has led to the vast majority of today’s wine being made ready to drink.

No-one wants to buy a bottle of wine and cellar it more than a decade before consuming it.

And no-one wants to wait a lifetime to get rich when they can do it in an instant.

But they can’t.

Short-term investments offer promises of quick returns, satisfying that desire for instant gratification.

At best, the venture will carry unacceptably high levels of risk.

At worst, it will be a deceitful money-grabbing scam.

Learn to recognise your own gratification biases and understand that a disciplined investment strategy with a focus on long-term goals is the only sustainable investment plan.

Loss aversion

Loss aversion is the trait that makes people more sensitive to losses than gains.

Short-term investments lull people into a false sense of security because of the promise of a quick return.

This makes them appear to be less risky when in reality, the opposite is true.

The lure of a rapid return on investments acts as a smokescreen to the possibility, indeed the probability, of a loss.

The concept applies whether considering a ‘get rich quick’ scheme, the latest cryptocurrency or a short-term investment on the stock market.

Always take a rational approach to investing, diversifying your portfolio with a view to long-term allocations that are not susceptible to market volatility.

Overconfidence bias

This is a bias that occurs when people overestimate their ability to ‘beat’ the market and predict short-term fluctuations.

The bias can be magnified by any short-term successes.

And it can lead to excessive training and speculation in short-term investments which ultimately is a guaranteed losing strategy.

To avoid these costly mistakes, investors need to recognise the limitations of individual judgement.

They need to understand that the most experienced and successful investors in the world have not done so by having the ability to predict short-term market movements.

And they need to check their egos at the door and invest based on evidence and long-term trends rather than speculation and gut instincts.

Recency bias

Investors tend to put more relevance on recent events than older ones, even if those recent events buck rational thinking and long-term trends over a sustained period.

It is a cognitive bias to believe that times are changing and old rules and trends no longer apply.

Short-term investments may seem particularly attractive during bull runs, luring investors to chase short-term gains on crypto or stocks which may not stack up.

Understand markets fluctuate in the short-term but are much more predictable in the long-term.

Research any targeted investment thoroughly rather than being overly influenced by recent performance.

Herding behaviour

Herding behaviour is another human frailty of investing.

People love to celebrate victory together.

It is why one betting platform introduced an option it calls “betting with mates”.

The problem with herding behaviour is investors tend to follow the crowd without conducting their own research, checks and balances.

It often results in poor judgement calls and bad investments.

Resist the temptation to follow your friends and focus on your own investment goals, risk tolerance levels and financial plan.

Avoid making impulsive investment decisions based on market noise, hype and social influence, instead relying on long-term sound principles of investing.

Learn to read the signs

Most get rich quick schemes and scams have the same obvious telltale signs.

Many require an upfront fee just for the privilege of ‘investing’.

They are adorned with fake reviews: “I invested $50,000 and banked a $15,500 return in just six months. You’d be crazy to miss out on this opportunity.” - John, 38 from Chatswood.

And they will contact you on a bone fide social media platform like LinkedIn, often posing as a friend of a friend.

As always, if it seems too good to be true, you can bet it is.

Right now, cryptocurrency is one to traverse with great caution.

Recent history suggests that Bitcoin and some other coins have proven solid investments over time, but with enormous peaks and troughs.

Generally the crypto market is mostly unregulated making it the ideal battleground for fraudsters.

It is riddled with phishers, rug pulls and Ponzi schemes designed to make OTHER people rich.

And they all use the same principles of deception and false promises that prey on people’s desires to get rich quick.

Learn to look at proposals and investment opportunities more analytically and cautiously.

Take the emotion out of every decision and don’t be gullible with your money.

Develop a professional wealth strategy and stick with it, instead of getting distracted by the latest short-term bait.

Get advice today

The best way to avoid short-term investment mistakes is to work with an experienced financial adviser who can give you qualified,  professional advice in line with your circumstances and strategy.

Calder Wealth Management boasts a leading team of financial planners and advisors.

We have an envious reputation built over decades of success working with satisfied clients.

We can help you avoid the pitfalls of investing while educating you on financial matters.

We’ll establish your wealth creation strategy or run a fresh set of eyes over the one you have in place to ensure it is on course to deliver your desired outcome.

And we’ll regularly review your investments to ensure they remain aligned with your goals, needs and ever changing circumstances.

If necessary, we’ll tweak them to take advantage of changing market conditions or your own life events.

No-one should go without quality financial advice from a team personally invested in their wealth accumulation.

At Calder, we pride ourselves on leading our clients into the future with structure, financial stability and confidence. 

Contact us today.

Written by James Herriman

The information contained in this article is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser.

Taxation, legal and other matters referred to on this website are of a general nature only and are based on Calder Wealth Management’s interpretation of laws existing at the time and should not be relied upon in place of appropriate professional advice. Those laws may change from time to time.

Calder specialises in wealth management with a focus on advice, investment, sustainability, insurance and finance.