Investment is a great way to grow your wealth in the long run, but it’s not always simple, and profits can be prolonged and never guaranteed. Seasoned investors also make mistakes. Each investor has various goals, risks, and investment strategies. No matter what your experience level is, there are a few common mistakes that you should definitely avoid.
Create a Clear Investment Plan
- Many common investing mistakes could be avoided if you keep a close watch on a few factors.
- The normal ones involve emotional stability, lack of planning, and poor to low diversification.
- Trying to outperform the market or being attached to a stock can be risky.
Zero understanding of what you’re investing
One of the world’s successful investors, Warren Buffett, says that to invest in such a business, you don’t need to understand. If you are clueless, start with diversified exchange traded funds (ETFs) or mutual funds instead of investing in a single stock. And if you do invest in a particular company, research that company and then make money.
Being emotionally attached to a company
It’s common to get attached to that company through which you have earned good returns in the past. But keep in mind that you purchased the share to earn good returns. If the organization’s fundamentals change for the worse, then don’t hesitate to let it go.
Have patience
Investing a long game where patience plays a significant role. High expectations of quick returns lead to anger and worse decisions. Focus on steady growth. Know your plan, stick to it, and trust the process.
A lot of buying and selling
Continuous switching in and out of investments, known as high turnover, can damage your returns. It accumulates fees and taxes and rolls out on long term growth. Unless and until you have a good experience with low fees, it’s better to hold your investments for a long time.
Perfect market timing predictions
Even seasoned traders strive to predict the market’s ups and downs. The majority of studies show that 90% of long term returns come from how you allocate your assets rather than market timing. Be consistent than predicting market timing.
Waiting for recovery
A lot of investors don’t sell their stocks, hoping that they will go back to their original purchase price. This can result in even larger losses. One of the best alternatives is to reinvest in stronger opportunities and cut those stocks.
No Diversification
Investing everything in one portfolio in the form of stock or sector can increase your risk. The investors should have a diversified portfolio that includes various sectors and asset types. Invest it in 5-10% of your portfolio.
Positive emotions for better decisions
The two biggest enemies for investors are greed and fear. The market is bound to swing up and down in the short term, but maintaining cool is the key to your long term goals. Sell the stocks when the market dips, or chase the risky ones as everyone over there is doing the same.
Now, the question is how to keep you on track?
Create a Plan for Investment
Be clear with your goals. You should consider where you are investing, keeping your goal in mind, whether it’s retirement, a home, or generating your wealth over time. Talk to a good financial advisor to help you shape your goal plan.
Use a hands off approach.
Regular contribution and portfolio review yearly to look if you need to adjust your mix of stocks, bonds, and other assets, depending upon your age and goals, is highly recommended.
Have some “fun money”
Are you tempted to chase trendy stocks? Keep aside a portion, let’s say 5% or less, for higher risk investments that you can manage to lose. It’s like playing in a casino for fun, but not for all your life savings.
Winding Up
Being clueless or making mistakes is a part of investing. But being aware of the said means helps avoid them from building a strong foundation with a long term strategy, which makes a huge difference. Go on with learning, be patient, and stick to your plans to see long term investment success.
