Life is all about taking chances and growing. But when you are making an investment, and your money is at risk, making a mistake could cost you fortunes. The pandemic gave many individuals ‘free time’ to start investing or at least the time to dive into the deep sea of being an investor. While social media sites like Youtube and Instagram were flooded with posts and videos encouraging people to start trading stocks, and tips and tricks on how to do it, some common pitfalls could have been avoided. If you are someone looking to invest the green bills but are scared of losing some, continue reading as this article talks about the ten mistakes you could avoid as an investor.
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Expecting too much
For people just getting into investing, penny stocks could be a way to earn big sums. But there are huge risks involved in these as you set up high expectations from these small stalks and when they underperform, you turn out to be disappointed. Having a clear picture before putting in your money is what will help you avoid this pitfall. Another way of avoiding risk is being aware of the historical trends of the stock you are trying to invest in.
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Being Impatient
Another investment mistake is a lack of patience. If you are investing for the long term, stocks may not produce the returns you want right away. When a company’s management announces a new strategy, it can take months or years for the new approach to take hold. All too often, investors expect the stock to act in their best interests immediately after they buy it. Experts recommend that if you want to enjoy the retirement you probably should start investing while you’re still young.
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Not Researching Enough
Failure to do proper research when investing can be a costly mistake. Venture capitalists and mutual funds regularly conduct due diligence to ensure that their investments are worthwhile. As a general rule, the more due diligence you have, the better your investment results. If you check out the company with all the warning signs and potential risks included, you are much less likely to be shocked by any sudden events.
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Using the money you don’t have
Investing money you can’t afford to risk can increase your emotional and stress levels, leading to poor and impulsive investment decisions. Considering your risk appetite when evaluating stocks is of key importance. And the willingness to lose part or all of the original investment in exchange for a higher return needs to be there because the future is unknown. Ensure that you evaluate which stocks or asset classes you feel comfortable with when determining your risk tolerance. Don’t invest money you can’t afford to lose like your rent or emergency savings.
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Not Diversifying enough
For rookie investors, one of the biggest mistakes that they could make is investing in a few concentrated positions. While this may be good for professional investors, for others it is always beneficial in going down the line of diversification. The general rule of thumb to follow here is to not allocate more than 5% to 10% to any single stock.
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Waiting to break even
Waiting to get even just shows that you lack the guts to let go of your comfort zone. If you think this doesn’t make sense, then consider this: by not selling a sinking stock you lose in two major ways. First, you forego any opportunity to invest that money in profitable stocks. Second, you don’t know how long the ship will continue sinking.
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Not understanding the company
Warren Buffet warns investors against investing in companies whose models are difficult to understand. More often than not, we fall in love with the company’s reputation, and forget that the company’s fundamentals have to align with our requirements and not vice-versa. Avoid investing in business models that do not make sense to you, and try building a portfolio of EFTs or mutual funds.
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Giving an upper hand to your emotions
While it is a fact that for a majority of investors fear and greed rule the market, the focus should always be on the bigger picture. A short time frame generally means unstable returns and for an investor who puts the heart into this instead of the mind, it is going to be frustrating.
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Following the herd
Following the crowd is another investment mistake because it doesn’t involve research and instead reflects what other investors are doing. Most people only hear about investments when they are already doing well. When the price of a particular stock doubles or triples, the mainstream media tends to treat those moves as hot takes. Unfortunately, by the time the media gets the attention, the stock may have peaked. At this point, your investment may be overvalued. Still, TV, newspapers, and the Internet can exaggerate stock prices. Late investors will probably always lose the money as the profits will already be made.
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Not Investing
The worst mistake anybody could make is the mistake of not investing at all. Agreed, that it gives the benefit of not risking any of your hard-earned money, but the thing that most people forget to notice is that, it also takes away any opportunity for you to get returns on that money. While it is given that in the initial times, the returns are going to be low, this should not stop you from investing.
Bottom Line
By keeping in mind, the aforementioned points, new and budding investors could explore the world of trading stocks. Multiple resources available can help one become a better investor if only one is mindful enough to take help from trustworthy resources. Keep in mind, money saved is money earned, and money invested is money multiplied. So, go ahead and invest your money cautiously as successful investing is all about managing risk, and not avoiding it.
