How You Might Be Harming Your Financial Future Without Realising It
Stienemarié Bonsma-Potgieter, CFP® – Financial Planner
When it comes to managing money, emotions often play a bigger role than we think. Fear, excitement or even impatience can cloud our judgment and lead to poor financial decisions. Without an intentional financial strategy to guide us, it’s easy to make mistakes that could harm our financial future. Here are some common pitfalls to watch out for—and how to avoid them.
1. Chasing Trends Without Doing Your Homework
The fear of missing out (FOMO) often leads people to jump into the latest investment trend without understanding what they’re getting into. Whether it’s cryptocurrency, property booms, or popular stocks, investing in something just because it’s a hot topic can be risky. What works for others may not align with your goals and you could end up losing money instead of making it.
What to do instead: Always research thoroughly before making investment decisions and only invest in assets you understand. If something sounds too good to be true, it often is.
Many people believe they can predict the perfect moment to buy or sell an investment, but this is extremely difficult to get consistently right—even for professionals. Markets move unpredictably, and waiting for the “right” time often leads to missed opportunities or unnecessary stress.
What to do instead: Focus on long-term strategies and consistency. Time in the market is more important than timing the market.
3. Chasing Last Year’s Top-Performing Funds
It’s tempting to invest in a fund that performed exceptionally well the previous year, but past performance doesn’t guarantee future success. Frequently switching to the latest “best-performing” fund can also increase costs and hurt your returns over time.
What to do instead: Choose investments that align with your financial goals, risk tolerance, and time horizon and choose funds with a good long term track record and investment philosophy.
4. Comparing Yourself to Others
We often compare ourselves to others, whether it’s a colleague, friend, or family member. However, basing your financial decisions on someone else’s choices can lead you off track. Their situation, goals, and risk tolerance are likely different from yours.
What to do instead: Focus on your personal financial plan. Everyone’s journey is unique, and comparing yourself to others may lead to unnecessary pressure.
5. Letting the News Guide Your Investments
Economic headlines, political developments, and market updates can create anxiety. It’s natural to want to act when you hear bad news or see a downturn coming, but making decisions based on news predictions is often unwise.
What to do instead: Stick to your investment strategy and avoid knee-jerk reactions. Markets have historically rebounded over time, and reacting to short-term news could lock in unnecessary losses.
6. Panicking During Volatile Times
Market ups and downs are normal, but panic often leads to impulsive decisions like selling investments when markets are at their lowest, locking in losses. Reacting to volatility can derail long-term plans and cost you money.
What to do instead: Remind yourself of your long-term goals and stay calm. If you’re feeling uncertain, speak to a financial planner for guidance.
7. Thinking Short-Term and Chasing Quick Gains
“Get rich quick” schemes are tempting, but they rarely work out. Focusing on short-term profits often leads to risky decisions, losses, and a lot of frustration.
What to do instead: Shift your focus to long-term wealth building. Compound growth works best when you give it time to grow.
8. Holding on to Losing Investments for Too Long
It’s hard to admit when an investment isn’t working out, and many people hold on, hoping things will turn around. Unfortunately, this can lead to even bigger losses.
What to do instead: Assess your investments objectively. If something isn’t performing and doesn’t fit your strategy, it may be time to move on.
Managing your finances successfully is less about luck and more about having a clear strategy, patience, and the discipline to stick with it. By avoiding these common mistakes, you can protect your financial future and make decisions that bring you closer to your goals.
If you’re feeling overwhelmed or unsure, consider speaking to a financial planner who can help you create a plan tailored to your unique needs. Remember, a calm and consistent approach is often the key to long-term success.