Don’t be Your Own Tinder Swindler

Over the past week, the world has been transfixed by another Netflix film – The Tinder Swindler - the documentary about the man who swindled people of an estimated US$10 million through the dating app.

Romance scams are nothing new, but have proliferated in the era of social media. They're some of the most common types of fraud in the UK, according to Action Fraud, which has seen a surge in cases recently. This Valentine's Day isn't all about hearts and flowers - my colleague Vikram Barhat has looked at the financial risks of separation.

Investing and romance seem to be unlikely bedfellows, one involving the head and the other the heart. But what if the rules for avoiding romance scams can be applied to investing sensibly? In essence - don't scam yourself with these simple investing rules.

Less is More

Although there are plenty of exciting opportunities for a keen investor, and trading back and forth can seem attractive, overtrading could hinder you from achieving your desired outcome. Overtrading means you ditch decent prospects too quickly in the search for the "next big thing". And that’s not considering the increased trading costs.

Expect Ups and Downs

Do you wake up every morning not knowing whether your portfolio is wildly profitable or if half of it is lost (looking at you, crypto bros)? A number one tip for investors is to not take on more volatility than they can afford or handle – and if it turns out the beta is higher than anticipated, an exit might be the right choice. But, experts also know that some volatility is to be expected, and markets rarely stay in the same mood for long periods of time. Likewise, relationships go through their good and bad patches.

Trust your Instincts

If an investment (or romantic proposal) sounds too good to be true, it probably is. But on the flipside, investing (and dating) should also be fun, and investing in a company you like can feel even more rewarding than choosing a company that looks right on paper. Trusting your gut is just as important with investments as it is in making decisions in your personal life, but make sure the decision is backed up by facts as well.

Get a Reality Check 

While trusting your instincts is important, your feet need to be grounded. Make sure you know what you invest in, if the business is sound and if a fund has a strong management. For stocks, the Morningstar Stewardship Rating can help, and our Morningstar Analyst Ratings for funds can help you wade through the options before making your selection. Likewise, if you are in doubt about your new partner's motives, a simple bit of online research might save heartbreak.

Don’t Pay For Too Much

Active fund managers are well paid, and there’s an argument that very good ones earn this by beating the index by a good margin over a decent period. But why should investors pay additional costs to reward them in the form of performance fees? That’s another cost that’s going to hit your investment return over the long term. 

For romance, if your other half wants you to pay for the flowers, the meal, the chocolates AND the taxi home all the time, perhaps it's time for an honest conversation. At Morningstar, we don't like excessive or unclear charges.

Don’t Live in the Past

A mantra at Morningstar: past performance is not an indicator of future returns. That's the same of romance as it is for money. One great holiday or a good year's figures may not be enough for the long haul.

Take tech stocks. Some have had double and triple-digit returns during the pandemic, and many of us wish we invested in these companies in time. But if you invested at the peak last autumn, you are likely down a fair bit today. Tesla grew 743% in 2020 but is down 11.36% so far this year, and our analysts still think the company is trading at a premium. So make sure the investment is still able to offer what you need in the long term. 

If They Let You Down ... Let Them Go

Not every investment will make you rich or recover your losses. If you’ve been let down over the past year or two – or five, we don’t judge – it might be time to cut them loose. Loss aversion (the tendency to be excessively fearful of experiencing losses relative to gains and relative to a reference point) is one of the main biases people have in their financial lives. However, if you cut your losses, those assets could be reallocated to an investment that makes financial sense. Selling a bad investment is probably much easier than deciding to walk away from a bad romantic situation.

Don’t Rush Into Things

If it’s the right one, you will not miss out by taking your time. Fighting your FOMO is important, and one way you can do this is by slowing down decision-making process by setting up “speed bumps”. These help us avoid impulsive decisions and let us take a step back from our emotions. For example, work to create a three-day wait rule before you buy or sell a stock (where you can’t act on a decision for three days). 

Don’t Let Strangers Make Your Decisions

It goes without saying that if someone tells you to put all your savings in one stock, you should think twice. Taking advice from social media rarely works in the long run, and if a guy on Tinder tells you to send him money, say no. Social media may not be the best place to get investment advice - or meet "The One".

There’s Plenty of Fish in the Sea

Lastly, the market is ever developing. Just because one investment turned sour does not mean that your next one will, if you take the time to explore your options and do your research. But importantly – investing should also be fun. Good luck!