The costly mistakes experts say investors are making
People are short-changing themselves by succumbing to social media hype and FOMO, experts warn
Investment markets have been volatile, with gold and cryptocurrencies experiencing dramatic price swings. A new report by CMC Markets highlights common investment mistakes made by many investors. One major issue is loss aversion, where people feel losses more intensely than gains of similar magnitude. Investors tend to hold onto losing positions longer than winning ones and sell profitable investments too early to lock in gains.
This behavior can be compared to property investment, where many individuals wish they had bought earlier due to appreciation.
Another mistake is selling profitable investments early. Investors often believe their recent success demonstrates skill rather than favorable market conditions. For instance, during the 2025 crypto rally, traders continued to add exposure even as prices rose, leaving the market vulnerable to sentiment shifts. Social media and news reports can also influence investment decisions, leading to euphoric behaviors and overtrading.
Social media influencers and peers can create compelling narratives about specific stocks or themes, prompting investors to jump in without proper research. Recency bias, the tendency to let recent wins or losses heavily influence decisions, can cause investors to overreact to short-term volatility and adjust strategies too frequently. This can also lead to a shorter definition of "long-term," with some investors considering a year as the new long-term investment horizon.
Fear of missing out (FOMO) can drive investors to prioritize participation over their regular investment processes. For example, individuals might invest in a stock or theme simply because others are making money, even if the opportunity doesn't align with their investment goals. Kernel founder Dean Anderson emphasizes that controlling emotions is crucial for successful investing, but it is challenging.
The report's data indicates that the average investor consistently underperforms the market index, and even professional managers struggle to outperform their benchmarks over time.
The report suggests that more information, easier access, and faster access to investments are marketed as benefits to consumers, but these features primarily generate fees for platforms and exchanges. Instead, focusing on a long-term investment plan and ignoring market noise is recommended. Automating regular investments can help remove emotional decision-making from the process, allowing investors to focus on controlling their own behavior.
Written by urgent.news from RNZ Business's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
