Trap 6. ‘The Stock Market Is On A High, So Returns Are Assured’

When someone assures you of returns in the stock market, it’s essential to approach such claims with extreme caution. The stock market is dynamic and prices fluctuate based on an array of unpredictable factors, including economic data, global events, interest rates, and investor sentiment. Even the most experienced investors cannot predict market movements with absolute certainty, making it impossible to guarantee returns.

Promises of guaranteed returns are often associated with fraudulent schemes such as pump-and-dump schemes, as mentioned in the previous point. To recap, in these schemes, fraudsters artificially inflate the price of a stock by spreading false or misleading information, thus creating a buying frenzy. Once the price peaks, they sell off their shares at the inflated price, leaving other investors with devalued stocks.

Such buying frenzy also takes place when the markets are at high levels. People rush to the market, looking at recent returns, not realising that the market performance may not remain the same in the future due to its inherent volatile nature.

The 2008 global crisis is a good example that can explain what this means. Even though markets were at unprecedented levels, people kept investing until the crash happened, and ended up losing a lot of money.

The allure of guaranteed returns can be tempting, but it’s essential to remember that the stock market comes with inherent risks. There are no shortcuts to wealth.