Expectations vs. Reality When Investing

October 12, 2021

Unfortunately, the gap between expectation vs reality when investing is often vast. That means bad investing decisions. Here are a few common misconceptions and how to do better.

Investing will turn you into a millionaire overnight like the lottery, right?

No, not exactly.

Okay, well, investing is guaranteed to earn a lot of money, right?

Not implicitly, but it can if you do it right.

As you can see, there are  a lot of misconceptions about investing. The reality is that most people know as much about investing as they do about Wall Street, which is to say practically nothing. Unless you happen to live in New York, most people only encounter investors through the news and Hollywood.

So, we think it’s time to do away with a few misconceptions about what investing is. The truth is, expectations vs. reality when investing has a big gap, but if you can make the two match, you’ll have a far higher chance of success. Here are a few common misconceptions about investing, why they’re off the mark, and how you can approach investing the right way.

Expectation: Investing Will Make You Rich Fast

You know the images you have of crazy-wealthy investors getting rich on Wall Street? Those images that make you think you can get rich as soon as you start investing?

Time to let go of those.

Investing can certainly grow your wealth. This is not the same thing as getting rich, and it certainly doesn’t happen overnight. It happens through a phenomenon called compound interest.

Let’s say you invest $100. Let’s say it earns 5% interest each year. At the end of the year, if you don’t touch that $100, it will grow into $105. By the end of the second year, it will grow to $110.25. That’s because you’re now earning interest on the original $100 and the $5 you earned in interest.

Basically, when you invest over time, you earn interest on the interest you earn. This snowballs over time, but remember, it takes years.

Expectation: The Market is Guaranteed to Go Up

October 1929. December 2007. What do those dates have in common? They’re the accepted start dates of the Great Depression and the Great Recession respectively, the two most significant examples in human history that the market is not guaranteed to go up and in fact crashes from time to time. Sometimes, it even crashes catastrophically.

Oh, and even when it holds steady, the average annual stock market return for the last century has held steady at 10%. Even so, average is the key word here. There will be some years you do better and some years you do worse.

In plain English? The market does not always go up, you can’t always know when it will go up or down, and more to the point, you should plan ahead to cushion those ups and downs.

There are two ways to do this. The first, which is consistent investing advice for every investor, is that you should diversify your portfolio. This cushions you against significant losses in any one area.

Second, you should diversify your portfolio with assets that protect you against stock market ebbs and flows, which means investing outside of just the stock market. The best way to do this is with alternative investments, since these have low correlation with the market (and often perform opposite to the market). These can also become rescue assets if the market crashes.

Expectation: Investing is Basically Gambling

Hollywood has a nasty habit of portraying investing like it’s blackjack or a roulette wheel—fast-paced, exciting, and more of a guessing game than an art.

Investing isn’t blackjack. It’s not roulette either. It’s not gambling at all. Gambling is all about big risks. And while some parts of investing carry greater risk, it’s quite possible to lower your risk level when investing—in fact, a well-balanced portfolio should have a balance of risky and low-risk investments in order to perform successfully.

Here’s the catch: the stock market is kind of roulette. It may go up. It may go down. It may turn out great for you or it might not. You don’t have any control over it.

However, the world’s best investors are not professional gamblers. They’re strategists who invest in companies and assets with a high probability of sizeable returns in the long-run. And if you want to see good results from investing, no matter how much you invest, you need to approach investing with a similar strategy.

Otherwise, you’re just gambling, and your odds of success are about equal to taking a spin on the roulette wheel in Vegas.

Let’s Invest the Smart Way

Here’s the thing: if the gap between expectations vs. reality when investing is significant, you can close it if you take the time to educate yourself. That means taking the time to do your homework, learn from the right teachers, and use the right tools to get started.

That’s where we come in. We help ordinary investors like you get started investing in blue-chip art, which has outperformed the S&P 500 by 180% from 2000 to 2018. We handle the research and educate you on growing artist markets. Then, we navigate the auction process for you and give members the option to buy shares in multi-million-dollar artworks. Then, when it’s time to sell, we handle the auction process so that you can collect your gains. Sound good? Then let’s grow your wealth. Fill out your membership application today.

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