Jaspreet Singh Says 98% of People Make This Investing Mistake — Do Experts Agree?
It’s important for any investor to avoid the common blunders that can hinder financial growth. Jaspreet Singh, the host of the popular “Minority Mindset” channel on YouTube, has offered advice on the biggest mistakes he sees investors making.
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In one recent video, Singh identified a mistake that he claims 98% of all investors make.
Keep reading for a look at the pitfall that Singh claims prevents most investors from building real wealth, what you can do to avoid it and what other experts have to say on the matter.
Singh Details What Motivates Most Investors
The allure of the stock market lies in its ability to turn small investments into large fortunes. Singh acknowledged that it’s tempting to daydream about purchasing an early stake in a company like Amazon: “They think, ‘Wow, a $1,000 investment in Amazon 25 years ago would be worth something like $366,000 today.”
To call that kind of return significant would be a massive understatement, and Singh said many investors imagine a future in which they’re wealthy because of one smart, timely decision.
This dream often prompts investors to hunt for what Singh calls the “next Amazon” — the elusive, affordable stock that will skyrocket in value and, over time, make them rich. Singh cautioned that this approach brings along considerable risk though. To illustrate the point, he explored the financial fate of a one-time Wall Street favorite.
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The Sears Saga
The perfect case in point, according to Singh, is Sears, once dubbed the “Golden Poster Child” of innovation by the Wall Street Journal.
In the 1990s, Sears outperformed its bankrupt competitors and launched a $4 billion renovation project to appeal to its core audience of female consumers, and between 2008 and 2010, its stock price tripled, Singh said.
And here lies the problem with investing in what looks like the next big thing: Sears failed to adapt to a changing economy and ultimately went bankrupt in 2018. Investors were left with nothing to show for their initial stake in the company.
So how can you distinguish between a future Amazon and a future Sears?
The Mistake 98% of All Investors Make
“This,” Singh said, “is where the question then becomes, ‘How do you know if you’re buying the next Amazon or the next Sears?’ And the real answer is: You don’t.”
The reality is that about 98% of investors don’t fully grasp what they’re investing in, according to Singh, who pointed out that every company — even a giant such as Amazon — will experience a life cycle.
Investing in individual companies brings both potential rewards and risks. While a thriving company will often yield significant returns, putting money into a declining one can wipe out your entire investment.
Other Financial Experts Agree
Many investors fall prey to the mania surrounding hot stocks such as GameStop or the latest cryptocurrency. They find themselves drawn to these trends without a clear understanding of why they’re even investing in them.
Lauryn Williams, a CFP who founded Worth Winning, said it’s common to see investors jumping on the bandwagon of trendy stocks simply because “someone else says it is awesome.”
Douglas Boneparth, a New York City-based CFP, president of Bone Fide Wealth and co-author of “The Millennial Money Fix,: agrees: “A lot of investors make the mistake of chasing trends or what’s cool because of FOMO,” or fear of missing out, he said.
A Better Plan for Investors
Boneparth suggested that investors should take a less intensive, more laid-back investment approach.
Passively investing in the market through index funds is an approach that allows your portfolio to grow steadily over time. Investing in diversified mutual and index funds means you’re less exposed to risk and can sidestep the losses that trend-chasing can lead to.
It’s similar to the approach Singh recommends. By investing in exchange-traded funds, Singh noted, “You’re buying a little bit of pretty much every company on the stock market.”
This diversified approach means that your investments are shielded from the volatility that investing in a single stock can bring.
Other Common Investment Mistakes Identified by Experts
It’s easy to make errors when you’re investing, and other common mistakes that experts have identified include not having clear investment goals, reacting too strongly to the regular ebb and flow of the stock market and neglecting to rebalance your portfolio.
Managing your portfolio requires careful periodic adjustments, or rebalancing, to keep your investments aligned with your overall goals and risk tolerance.
Successful Investing, According to Singh
Chasing the “next big thing” and hoping for massive returns can be a quick path to financial disaster. Singh pointed out that this approach often carries a substantial risk that can lead to significant economic losses.
Singh, along with other financial experts, says a successful long-term investment strategy should include index funds or diversified ETFs, which can protect investors from market volatility and the potential for big losses associated with investing in individual stocks.
For Singh, the secret may lie in passively managed ETFs that don’t rely on a human manager who charges high fees. He was quick to point out that “a 1% fee over the course of your investing career can eat up more than a quarter of your total investment profits.” Instead, Singh recommends automated ETFs that don’t have high fees.
As with any investment opportunity, it’s important to know what your goals are, how much risk you can tolerate and how active you want to be in managing your investment. Looking for the next Amazon can leave you facing big losses; but, even when you’re investing in the kinds of index funds that Singh and other experts recommend, it’s important to remember that investing is inherently risky and losses can always happen.
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