Investing is a subject that causes both excitement and stress for many people. It’s exciting because it can be one of the most reliable ways to build wealth. It’s stressful because it involves money, which is something most of us value very highly.
The best advice for those new to investing is simple: Learn as much as you can about the process and make sure you’re comfortable with the risks involved before you start.
Investing is not like gambling or playing the lottery. Successful investors are not lucky; they’re prepared. Here are some common mistakes people make when investing and what you should do instead:
Not Investing At all
How many times have you heard someone say: “I’m too busy right now, I’ll start investing once my kids go to college.”? How many times have you said it? While it’s understandable (we’re only human), you’re also making one of the biggest investment mistakes out there. As with anything in life, if you don’t start from scratch, then it’s impossible to reach your goal. It doesn’t matter how much time you will have to invest when your kids are grown up or when your debt is paid off. If you don’t start as soon as possible while saving money on a regular basis, then you won’t have financial freedom especially when emergencies strike.
Investing Without Learning
One of the biggest mistakes new investors make is failing to learn enough about their options before investing. You wouldn’t buy a home without knowing its value, right? So why would you invest in anything without doing the same research? The best way to get started is to pick up a basic investing book that will teach you the basics of how stocks, bonds, mutual funds and other investment vehicles work. Once you have a good idea of where you want to invest your money, take some time with a financial advisor or talk with an investment professional who can help walk you through your options and show you how to go about making the right investments.
Investing In Individual Stocks
While it’s tempting to jump in and try to pick stocks that will outperform the market, it’s very difficult for an individual investor to beat the market on a consistent basis. Investing in multiple asset classes in different companies and categories is a much better option because it gives you a highly diversified portfolio which can help you lower your overall investment risk. In addition, they can give you broad exposure to different sectors of the economy without all of the additional research and time commitment that goes into picking individual stocks.
Not Taking The Market Ups and Downs Into Account
No one can consistently predict the ups and downs of the stock market, but you can choose investments that are not susceptible to market volatility such as fixed income assets– Government Bonds & Corporate Bonds. Generally, fixed income assets are safer investments than equities because they don’t decline as much in value during a downturn in the market, and their returns are less volatile. You can also get a sense of the rough risk involved in bond investments through ratings.
Keeping the Bad Stocks
You should be prepared for your stock picking skills to fail you occasionally, which means you should also be ready to cut your losses when necessary. If a stock isn’t performing well and doesn’t look like it will do better in the future, sell it. Don’t wait for it to turn around and don’t get emotionally attached to it because that’s the way you made your first investment money.You should stick with a specific investing plan or strategy for the long term instead of risking it with something that’s just short-term.
Investing is a constant process of learning and making mistakes. It’s easy to get discouraged when you make a big mistake, but it’s important to learn from your errors and move forward. Keep in mind– the only thing standing between you and becoming a successful investor is yourself.