Humans have a knack for doing what they know over and over again. For example, you may have the same type of investing strategy you’ve used for 10 years. But have you ever stopped to consider whether it’s actually working for you? Maybe fees have eaten you alive. Maybe you haven’t earned as much as you’d like…
It’s always good to brush up on the good ol’ basics. Take a look at a few reasons you might be losing money in the market.
Reason 1: You ignore market cycles and dismiss global events.
You probably didn’t “ignore” the pandemic. In fact, investors turned out in droves and young investors have entered the market in record numbers during COVID-19. However, do you always consider business and economic cycles? The market has business and economic cycles, and people often lose money by ignoring them. Understand how a downed economy, declining job market and how economics play into the mix.
Investment markets also rise and fall when a specific event occurs. For example, The S&P 500 index dropped 34%, 1,145 points, at its peak of 3,386 on March 23, 2020, due to the COVID-19 pandemic. However, if you know that if you sat it out and kept your money in your investments, you know that a year after the COVID-19 emergency hit the United States, stocks gained 79% from their previous lows.
Reason 2: You get emotional.
You can spend your whole life studying behavioral finance, a field that explores why people succumb to fear, greed and herd mentality when investing. Herding mentality in investing means you go along with the crowd and neglect to evaluate all the information about the company (including overvaluation) before you invest.
Take the GameStop (NYSE: GME) phenomenon as an example. When retail investors used Reddit as a vehicle to boost the stock price of the video game retailer, Wall Street hedge funds that had heavily shorted the stock lost millions.
Despite the not-so-impressive fundamentals of the company, investors bought GameStop, cementing herding behavior through social media. Over a quarter of American adults say they bought GameStop…