Flurry of new, high-risk investment products can spur investor FOMO

The global financial services sector is developing at a fast pace, with growing competition among providers leading to a flood of new products. While this creates more choice for investors, it also adds to the complexity. In many cases, the sheer volume of options makes it harder, not easier, to make sound, long-term investment decisions.

This is what we call the paradox of choice. In theory, more options should lead to better outcomes, but at a certain point, the utility of additional choice begins to decline. Instead of empowering investors, too much choice can paralyse them or lead them to chase shiny new offerings that aren’t aligned with their long-term goals.

Flurry of high-risk offerings diverting investor focus from the long-term

We see this dynamic playing out across asset classes, with Special Purpose Acquisition Companies (SPACs), cryptocurrencies, and other high-risk instruments capturing headlines and investor interest. While these products may have their place in certain portfolios, I’m not convinced they’re suitable for delivering the long-term outcomes that most clients want. The risk appetite needed to accommodate some of these newer vehicles often exceeds what’s reasonable or appropriate for the average investor.

Compounding the issue is the fact that financial markets have been awash with capital, and looser financial conditions have made it easier for these products to enter the mainstream. As they’re launched into the market, investors are being enticed into them by massive marketing teams that stimulate demand.

Social media further amplifies the buzz around new investment trends, and informal conversations, be it at a social gathering or in the office, often reinforce the idea that these products are must-haves. The result is a powerful sense of urgency and fear of missing out. The risk, however, is that you may end up missing your long-term goals – not because they were out of reach, but because your portfolio was steered off course by distractions that didn’t align with your plan.

But wealth management is, by nature, a long-term exercise

It’s about planning, and good planning requires consistency, reliability and clarity of purpose. The plan should always be above the product. The plan identifies the investor’s needs and objectives clearly. The product is a supporting tool to help implement the plan, not the other way around.

When structuring a client’s portfolio, focusing on instruments that have been tested across multiple market cycles and have delivered predictable outcomes is key. Take equities, for example. While often labelled as risky, over time they’ve consistently delivered inflation-plus returns, often in the range of 6% to 7% per year. If you have the patience to stay invested for the right time horizon, equities can be among the most reliable asset classes available.

Contrast that with cryptocurrency. Even if Bitcoin proves successful in the long run – and that’s a big “if” – how do you confidently insert it into a financial plan as a reliable return generator? The forecasting risk is simply too high. If your plan depends on assets with wildly unpredictable returns, you’re not really planning; you’re speculating.

That’s why investment recommendations should be subjected to rigorous stress testing. Our actuarial team works with us to model whether the portfolio can reliably achieve objectives like inflation-plus-3%. If we can’t demonstrate that, we won’t include the product. It’s as simple as that.

Unfortunately, not all advisers take this approach

There’s a growing tendency to concede to client demands without challenging whether those decisions are in the client’s best interest. If a client asks for 10% exposure to cryptocurrency, some advisers simply deliver it, even if it could derail the entire financial plan. But I believe that’s a failure of advice, not a client mistake. Clients come to us for guidance, peace of mind, and long-term security – not to have every preference rubber-stamped.

The key is to anchor the plan in evidence and logic. If a client is uncertain, they should ask their adviser a simple but powerful question: based on the mix of assets in my plan, how confident are you that this will achieve my long-term goals, and can you show me the proof? If the answer is vague or the rationale isn’t backed by data and a track record, then it’s worth revisiting the strategy.

Ultimately, clients pay not for access to the latest product, but for the assurance that they’re on the right path. They deserve to know that the solutions in their portfolio have been vetted and selected with care, not because they’re the latest trend but because they’re fit for purpose.

Wealth building takes discipline, not trend chasing

It’s noisy out there. New investment opportunities will continue to emerge, and the pressure to act on them will remain high. But in our view, the best response to this complexity is not more complexity – it’s simplicity, discipline, and a relentless focus on the long term.

Wealth creation isn’t built from chasing trends but by following a well-thought-out plan, using reliable tools, and resisting the urge to tinker. In an era of endless choice, that kind of discipline is more valuable than ever.

* Pask is the chief investment officer at PSG Wealth.

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