– crash? Or even total loss? Anyone who deals with investing in the stock market on the Internet often has the impression: I have to act immediately! For a successful investment is the poison.
Exciting headlines are circulating on the Internet – some sound threatening: “Caution, insiders are selling their shares”, “Losses are imminent here”, “Is there a risk of a bank crash?”. Others entice you with quick money: “Top returns”, “Up to 150 percent profit potential”, “The forgotten mega market”.
Of the stock market boom while Corona has given a huge boost to financial media, bloggers, youtubers and other self-proclaimed investment professionals. The titles of the posts and videos sound lurid. They often create pressure to act. Is lithium really a big opportunity? Should I get into hydrogen?
Clickbaiting is intended to increase attention
“Headings like this are a form of clickbaiting,” says asset manager Gerd Kommer. The aim is to lure readers and viewers with shocking, distorted, exaggerated headlines – and to spread panic.
Gerd Kommer calls the phenomenon “investment pornography”, an old term from the US financial world. The aim is not to spread serious facts, but to increase circulation and click rates. And: “selling junk financial products and investment strategies,” says Kommer, author of the book “Sovereign investing with index funds and ETFs.” So it’s about the money.
Such headlines appeal to some of the worst emotions and traits: greed, envy, impatience, naivety, hubris, ignorance of capital markets.
One could say: The vying for the scarce resource of attention on the Internet has long since reached the subject of financial investments. “Social media is among the worst propagators of financial pornography.” This has made the problem even worse, says Kommer.
Build wealth over the long term
All the hot advice and insider tips are not helpful for long-term wealth accumulation – on the contrary. They will most likely end up eroding returns.
Capital formation has nothing to do with “acting quickly”. Kommer, who has known the capital market for more than 30 years, relies on ETF – ie exchange-traded index funds. They passively track an index, meaning they are not actively put together by fund managers. A strategy that consumer advocates also recommend.
“A solid investment strategy for wealth accumulation or for old-age provision does not mean that you have to constantly deal with the stock market,” says Niels Nauhauser. He is an investment expert at the consumer advice center in Baden-Württemberg.
Back and forth makes pockets empty
Nauhauser recommends well-known rules: buy and leave. As a rule, trading in securities costs fees. It’s better to invest in the long term and not constantly shift funds – exactly the opposite of what “financial pornography” suggests.
Also important: Invest widely at low cost. This works best with an ETF on the MSCI World. It contains around 1,600 companies – and thus represents a large part of the stock market. The emerging markets are not included here, however.
If you want to go a little deeper and spread the risk more widely, you can select several ETFs and add different regions. “Within a region, you can still combine blue chips and small caps,” says the expert – ie high-volume shares in large companies and companies with a low market capitalization.
“Today we have significantly more consumers with portfolios that already contain ETFs,” reports Nauhauser. “It used to be something for exotic self-deciders. Today it’s commonplace.” And as a rule, such an investment was a good decision.
Individual shares are fun – but rarely bring success
Fund managers try to achieve a higher market return with clever selection of individual stocks or segments. But as a rule, they fail, statistics show. That proves ETF investors right.
“The bottom line is that the chances of beating the market with a selection of individual titles are extremely poor,” says Nauhauser. Therefore, he generally advises against individual stocks. This also reduces the risk that lurid headlines will tempt investors to make ill-considered and emotional decisions.
“The temptation is great to still look at the depot every day,” says Nauhauser. After all, there is something playful about it. Those who tend to do so can invest around 80 percent of their assets in ETFs and actively enter the market with 10 to 20 percent.
“So you can live out your hobby and compete with the market if you like it and enjoy it,” says Nauhauser. Because for some, a bit of excitement and thrills are part of the stock market.
–
