Even as economies around the world battle inflation-related downturns, retail investors continue to expect high returns. A study from 2021 showed the gap between expectations and professional projections is widening as more and more focus is placed on quick gains.
The rise of mobile investment apps, algorithmic trading, and 24/7 news coverage have all contributed to this inflated sense of expectation. Many investors are first-time traders, so they don't have much experience in the stock market beyond what they've read online or seen on TV.
But the truth is that investing in stocks requires patience and discipline. There's no guarantee of a quick return – it could take days, months, or even years for your investments to pay off (if they do at all).
So how can you manage expectations when it comes to investing? Here are some tips.
Understand market cycles
Before making any investments, be sure you understand the cycles of the stock market. Despite what they might tell you on r/wallstreetbets, the line doesn't always go up. The stock market is cyclical, so it's important to understand where we are in the cycle before investing.
That means studying past performance and learning about macroeconomic indicators (GDP growth, unemployment rate, etc.). This will help you better understand what's driving the market and give you a realistic outlook on potential returns.
Set realistic goals
Make sure your goals are realistic and achievable – don't set yourself up for disappointment by expecting too much from your investments. If you're new to investing, it may be wise to start small with low-risk investments as a way of testing the waters before jumping in head first.
You could also observe the positions of well-known traders and track their performance over time. This will give you an idea of what's achievable while also helping you understand the market better.
Diversify your portfolio
Don't put all your eggs in one basket. Spread out your investments across different stocks, sectors, and asset classes. This will help protect you from market volatility and provide a more balanced return on your investments.
The idea of going "all-in" isn't one you want to explore. Unless you're incredibly lucky, it will likely come nowhere near the return you had hoped for.
Keep up with the latest news about the markets so you can make well-informed decisions when it comes to investing. Being aware of what's going on in the world can help you adjust your expectations accordingly.
For instance, if you see that Goldman Sachs is laying off six percent of its global workforce, your expectation of its stock price should probably be altered a bit.
Don't invest with emotion
If you look hard enough, you can find a positive case for almost any company. Your emotional tie to an investment can quickly cloud your judgment and lead to bad decisions.
When investing, try to look at it objectively and base your decision on the data rather than feelings.
It has never been easier to get into the markets. It is not a get-rich-quick scheme, and you need to understand that there is a risk in investing.
But with careful, thoughtful planning and realistic expectations, you can make smart investments that will help you reach your financial goals in time.