Is there a short-cut to investing success?

With plenty of ‘get rich quick’ schemes on the internet, Rachel Lacey discusses whether investment strategies can make you money fast.

Everyone knows someone (or knows someone who knows someone) who has made a quick killing on an investment; whether it’s a particular share purchased at just the right time, cryptocurrency or even a quickly flipped property.

And social media sites such as TikTok and Instagram are luring younger investors in their droves, eager to make money fast.

My own 14-year-old son even recently told me he wanted to start investing and handed over his laptop open on the home page of a CFD trading platform. Contracts for difference – which enable you to speculate on the price change of a specific asset – certainly shouldn’t be an investment entry point.

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Whether you’ve been chatting to somebody in the pub or scrolling social media sites, success stories and investment tips can make quick wins look easy. But is there really a short-cut to investing success?

Many investors in crypto assets certainly seem to think so.

Estimates suggest that as many as one in five UK adults now own some cryptocurrency. But research from the Financial Conduct Authority (FCA) in 2021 said that as many as 18% of investors in cryptocurrencies had been driven by a fear of missing out, so-called FOMO.

More worrying still, 14% of investors had actually borrowed to fund their investment. So convinced are they of the money-making potential, they’ve spent cash they haven’t got.

But while there are plenty of people who have made quick profits, cryptocurrencies, along with CFDs and currency exchange are highly speculative, especially for the uninitiated.

At the same time, the FCA also noted that despite rising investments in cryptocurrency, overall levels of understanding had fallen and that those that had been swayed by advertising to invest were the most likely to regret their investment.

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It also warned that the risks of investing in crypto assets are often underplayed, and that any investor considering it needs to be prepared to lose all their money - a view that has since been echoed by Andrew Bailey, the governor of the Bank of England.

There is also a significant risk that any investment that promises tantalising returns or super-fast gains could be a scam, and in February it emerged the FCA had blocked more than 10,000 ads on social media from ‘fin-fluencers’.

It was, thankfully, relatively easy to put my son off the lure of CFDs.

Above the image of the Hollywood actor who was endorsing this particular platform, was a banner warning that CFDs were ‘high risk’ and that ‘84% of retail investor accounts lose money when trading CFDs with this provider’.

“Ah OK,” was the response and, for him, the end of the conversation. But, for me, it was a prime opportunity to remind him that he is already an investor. We logged on to his Junior ISA, took a look at how it’s doing and looked at some of the companies he’s got shares in – a good handful of which were household names he was familiar with.

But of course, having your parents and grandparents pay into a JISA on your behalf isn’t really the stuff of Instagram, TikTok or YouTube Shorts. It’s not especially exciting and there’s no quick thrill of rapid gains – it’s just something your mum, the financial journalist, bangs on about.

By this point the call of the PlayStation was strong and this wasn’t the time for a conversation about the benefits of long-term investing. I hope though, that when he does get to access his JISA (in a worrying four years’ time), he’ll start to appreciate it.

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There might be some people who manage to turn a quick profit, but as far as I can see it either comes down to luck or a serious and time-consuming commitment to research. And those who don’t make money, unsurprisingly don’t make TikTok videos or brag about it in the pub.

As boring as it might sound, your investments are far more likely to be successful if you take a long-term view and embrace regular investing. When you’re looking for big returns, fast, absolutely everything comes down to the performance of the investment you choose. Although those opportunities might exist, pinning them down is far from easy – even superstar investor Warren Buffett admits that luck has played a huge part in his success - playing into the hands of fraudsters and unscrupulous brokers or ‘tipsters’.

When you’re not in a hurry, time does much of the leg work for you and the specific investments you choose are less important. That’s because, as the years pass, and if you’ve reinvested any dividends, the returns your money makes start making money too, boosting your overall returns.

This phenomenon is known as compound returns.

You might sniff at the gains in year one and two, but it ramps up over time. Over 10, 20 or 30 years the difference can be staggering - maybe even enough to make a 14-year-old take notice!

That’s not to say there isn’t any space in an investment strategy for the odd holding that’s a little more speculative – if you have the money to play with and understand the risk involved. You might just get lucky and have your own success story to tell, but even for professional investors, it is ultimately a gamble.