Whether you’re starting as an investor or well on your way to being a pro, mistakes are probable when investing. It may be impossible to escape them all. But knowing what they are can be the difference between success and failure.
That said, here we highlight some of the common mistakes that investors make to help you in your investment journey.
Lack of Investment Goals
Lack of proper investment goals make it challenging to see where you’re headed and what should be your next move. In that case, mistakes are likely and unavoidable.
Successful investment requires careful planning and outlining the goals that you hope to achieve. From retirement to education, the goal can be anything. But you need to plan and prepare to commit long-term.
Not Understanding the Investment
According to the most successful investor of all time, Warren Buffet, the worst mistake possible is investing in a company that you don’t understand. Investing isn’t just about buying or selling stocks. Successful investment requires that understanding the company you are financing.
So, don’t blindly invest in a company with the highest possible returns. Instead, look for one that you understand so you know exactly what you’re supporting. The best way to do that is to have a diverse portfolio.
Lack of Patience
The best approach to yielding high returns is going slow and steady, especially as a beginner investor.
As I mentioned, investing requires long-term commitment, particularly if you’re following a passive investment strategy. With passive investing, you buy a stock with high potential and hold it for some time; instead of frequently buying and selling stocks.
The profits roll in gradually, over time. Thus, immense patience is required to wait until the best time to sell the stock. It requires you to keep your expectations grounded and set a realistic timeline for your portfolio.
Too Much Investment Turnover
Lack of patience and control is detrimental to your success regardless of a passive or active investing strategy. Where passive investing requires buying and holding stocks, active investing involves relatively frequent buying and selling.
But, constantly jumping in and out of positions is also counterproductive. The transaction costs from the frequent buying and selling will kill your returns. Plus, the short-term tax rates and other missed investments opportunities can ruin your investment portfolio.
Letting Your Emotions Rule
When making critical decisions, emotions are the last thing anyone should be relying on; the same is the case with investment planning. Your fear of failing and greed for success should not be the ones guiding your decisions.
As mentioned, patience is vital for investment success. Instead of getting emotional and antsy, it’s best to focus on your financial goals. The stock market fluctuates constantly, but the long-term investment can help survive the turbulence.
Failing to Diversify
You must have heard the phrase “keeping all your eggs in one basket.” It implies risking all you have on the success or failure of one thing. In investing, that is what you need to avoid.
Instead of risking it all over one stock, it’s best to diversify your portfolio, especially if you’re a beginner investor. You would have greater chances of success by allocating funds to different asset classes. Generally, avoid allotting 5-10% of funds to any one investment.
Ready to Start Your Investment Journey?
With the emergence of numerous Fintech startups like Logiciel Services, the Fintech industry is expanding exponentially, and with it rise many financial management solutions. One such example of innovation is Robo-Advisor.
Much like financial advisors, these Robo-advisors help you manage your investments. But unlike their human counterparts, they have almost negligible commission fees. Robo-advisors offer resources and tools needed to trade and manage your investment, making them ideal for beginner investors.
Some of the best Robo-advisors include Betterment, SoFi, WealthFront, Acorns, and more. To invest for a secure future, then consult a financial advisor and avoid the mistakes mentioned above.
So, are you ready to start investing?