Whether you are a seasoned investor or a rookie, mistakes can cost you a lot. In this article, we discuss some common investing mistakes and how best to avoid them.
1. Little or no knowledge of the investment
Warren Buffet only invests in companies he fully understands. Try to understand a company’s stocks before you invest. Do not underestimate historical performance. Though a stock’s past performance does not guarantee the future, it is still good to get acquainted. Also, because things cannot always be perfect, ensure to build a diversified investment portfolio.
A portfolio is a collection of assets owned by an investor.
2. Making an investment plan based on social media
If you take investment tips from social media, you might be making a big mistake. This is mostly because people who give those tips do not know your financial status, and the criteria they used might not be applicable to you. Do your research as much as possible, not only on the investment but also on the people giving the investment advice before taking your decision.
3. Obsessively checking market performance
While it is good for you to keep yourself abreast of what is going on in the economy and financial markets, constantly checking its performance can be depressing. The instability you see might make you start to change your investments rather than leave them for a long time.
4. Not having enough patience
You tend to have great returns at the end of the day when you are patient and grow your portfolio steadily. Take your time so you can have what you desire at the end of your investment.
5. Wrong or no investment goals
You need to know what you want before venturing into an investment. Have clear objectives of what you want out of an investment before you proceed.
6. Investing money you will soon need
The financial market is usually not stable, so investing money that you will soon need is not advisable. Don’t use money that is meant for your daily needs to invest just because you think you can get some quick returns.
7. Giving in to your emotions
Do not allow fear or greed to control you when it comes to investment. Instead, try to see the bigger picture. Over the long term, results have shown stocks to reward patient investors. Irrational investors tend to lose their investments due to impatience and greed.
8. Desiring a particular stock
There is nothing wrong with seeing a stock that you like and investing in it because it is doing well. The problem is when you’re attached to only that stock and not trying out other assets available to you. You run the risk of being a bag holder.
9. No asset allocation
Asset allocation is the division of investments among different asset categories such as bonds, stocks, equities, fixed-income, commodities, etc. Research has proven that the allocation of assets is a crucial way to acquire a successful investment portfolio.
10. Not investing at all
Some people are so scared of investing that they forget the good that comes with it. Not investing at all is, in itself, a financial mistake. Keeping all your money in the bank means that as the inflation rate increases, your money loses its purchasing power.
How to avoid these investing mistakes
- Familiarize yourself with personal finance. Read resources and books on money. Get close to professionals.
- Do not expect to get rich immediately. Be patient and work on building a great portfolio.
- The key to building great wealth is a consistent long-term investment.
- Before investing, separate the money for your immediate and daily needs. Also, do not touch your retirement funds.
- Invest in reputable companies.
At what age can you begin to invest?
You need to be able to agree to a legal contract on your own to invest and 18 is considered the age you become an adult.
What investments should you stay away from?
1. Subprime Mortgages
They are low-rated investments with a higher potential for default. They pay higher rates to investors but have high risk.
2. Penny Stocks
Penny stocks trade at low prices and that is because the company behind them is about to go bankrupt. They are sort of manipulative because stock promoters write articles to pump their share price up, so they can make a profit.
3. Private Placements
These are stock sales that are not on the public market, and you must be an “accredited investor” to have access to them. For an average investor who can’t get enough information on how private placement works, this can be dangerous.
4. High Yield Bonds
“High yield” also known as “junk” bonds have low ratings from credit agencies regarding their abilities to pay their debt. Companies with low ratings are more likely to go default or bankrupt.
This is a fraudulent scheme that pays first investors from money invested by later investors. The scheme eventually crashes when there are no new investors and there isn’t enough money to go around.
Why do most investors fail?
Most investors fail because they do not have patience. Another thing is that some investors do not have full knowledge of the investments while others allow their emotions to control them.
We can safely say a lot of investing mistakes made by people stem from the above. The key to building great wealth, amongst others, is being consistent and having patience with your long-term goals.
Want to tell us about some investing mistakes you made? Share with us in the comments.