Advice matters
Investing fads or investing trends?

From the Dotcom Bubble of the late ‘90s to the now largely defunct NFT craze, every now and then an investing fad peeps out from the horizon, sending shockwaves through the investment community. But where are they now?

As an investor, being able to separate fads from trends is crucial. So, here are some key things to consider, according to our SHARE advisers.

What’s a fad?

A fad is a short-lived trend characterised with lots of enthusiasm and energy. Typically, it seems to come out of the blue. For example, it could be a sector that suddenly becomes popular or a ‘meme stock’ (a share that gains popularity among retail investors through social media).

Non-fungible tokens (NFTs) are a recent example of a meteoric rise to popularity. If you’ve never heard of them, these are a form of crypto asset used to certify ownership and authenticity of a digital file including an image, video, or text. In other words, they are unique digital items that people can buy or trade online.

While NFTs had been traded as early as 2015, it’s in 2021 that they reached their peak, dragging in many celebrities and artists. But as it turns out, the euphoria wasn’t meant to last. According to a report published in September 2023, 79% of all NFT collections have remained unsold, and the majority of NFTs (owned by an estimated 23 million people) are now worthless.

What’s a trend?

A trend indicates a consistent pattern or direction in market behaviour over time. Unlike fads, trends usually have a broader appeal, not just limited to early adopters. For example, think about the global shift towards renewable energy and how it’s influencing investment markets.

The biggest difference between a fad and a trend is that trends persist over the longer term and are usually based on fundamentals. Fads, on the other hand, typically die down after a short period.

But while in hindsight fads and trends are easy to spot, that’s not always simple when on the brink of making a financial decision. At any given time, there are many investing fads circulating around, vying for investors’ attention, feeding into their emotional reaction. So, here are some tips to help you keep a clear mind.

Before investing, take a moment to reflect

It’s important to detach emotions from your investment decisions. Before jumping in, take the time to ask yourself these key questions:

  • Am I driven by ‘fear of missing out’ (FOMO)? Thinking that others may make the most of their investments, while you don’t, can be a powerful psychological force – and one that’s unlikely to help your financial standing.
  • Am I swayed into believing this is a sure-shot success? Get-rich-quick? If it’s too good to be true, it usually is. As an investor, it’s generally more prudent to aim for long-term sustainable growth, rather than relying on volatile short-term bursts.
  • Have previous impulsive investments led to regrets? Each investment, whether successful or not, carries a lesson. Reflect on them, and use them as stepping stones to make informed decisions in the future.
  • Have I sought validation for this investment more than considering its potential pitfalls? It’s natural for humans to seek affirmation, especially when venturing into uncharted territory. But make sure you remain grounded, research thoroughly, and be aware of potential challenges.

If you answered yes to any of the above questions, it might be worth discussing your investment strategy with your SHARE adviser. As financial advisers, we’re here to inform you and provide perspective. And most importantly, we can help you find your way through the ‘market noise’.

Like to talk?

Get in touch with a SHARE adviser today if you’d like to discuss your investment options, including KiwiSaver.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.