Written by Demi Oye
Financial intelligence pays off, only if you avoid certain rookie investment mistakes.
The feeling of earning some dividend typically leaves the investor wanting to invest more.
Some say investing is about sitting down, relaxing and letting one’s money work. Ironically, one cannot afford to feel too relaxed as an investor.
Investment mistakes come like a flash. One bad decision and the investor gets into serious debt.
To avoid having your money go down the drain, you need to be aware of the eight common mistakes every investor needs to avoid.
Here Are 8 Common Investment Mistakes to Flee From
- Investing Only in Familiar Grounds
Many people building individual stock portfolios invest only in company stock. This set of investors always prefers local investments over global investments. Meanwhile, global investments will not only give them great diversity but consequent better security.
When an investor fails to diversify, he is making one of the most significant mistakes ever. While the experts might indeed be able to get away with this, rookies do not need to mount this table at all. Ordinary investors need to stick with diversification. You can save yourself sad news and lots of sad news by allocating only 5-10% of your capital to one investment.
- Letting Emotions Allow You to Follow the Buzz
Emotions have been identified to be the biggest killer of investment returns. Highs or lows that come with feelings may push you to follow the buzz. Choose a better option by focusing on the facts. TV shows and advertisements on the internet work on your emotions and make them drive you to make decisions. A very common trap is falling in love with a particular company because of the happenings during a specific period.
Do not let your love for a company be the driving force for investments. Buying stocks is not the same as staying loyal to a brand by buying their toothpaste. It’s not okay for random advertisements to be your driving force either. Emotion also allows you to wallow so much in your pain when you fail. Thus, one forgets the lesson to be learned from the failure.
- Being A Raider And Taking Out Short-Term Dividends
First, raiders are those whose stocks hit an increase of 20%, and they sell all of it. The danger in doing this is not as apparent of that of short-term dividends. The cost of the transaction and the short-term tax makes it preferable to avoid performing several transactions (especially regarding stock sales) on the short term.
As for the raiders, they are referred to as successful for a while, but the investors that enjoy real success are the connoisseurs. While a raider sells all and indeed gains massive profit, a connoisseur will sell only a certain percentage and keep the rest of the investment going, so if a further rise comes, they earn even more. Even times when they do not pick winners for investments (probably by miscalculation); they still make their gains later on.
- Only Rolling With The Big Companies
Diversification is not the same as buying from only well-known companies. Not everyone has the kind of money to buy shares in very predictable companies like Amazon or Apple. Aspiring to even buy shares from any of these big companies alone may mean never investing. Amazon is trading at about $1,000 per share. How many units can a new investor possibly afford?
Little beginnings work with investments too.
- Trading Too Frequently
It is tempting to keep trading. Who knows? You may hit an unbelievable price while staying on your computer. The kind of adrenaline rush that comes with trading suggests that it is no activity to be engaged in all the time. Over-trading is linked to desperation.
Smart trading is not the same as frequent trading.
- Lacking Patience
When it comes to investing, your expectations have to be very realistic. Your portfolio will not experience a double overnight. Well, that may happen in some cases, but it is not a very realistic expectation. Keep your expectations realistic, be patient with timing and everything else will be fine.
- Getting Even
Many people think it is okay to wait until a loser gets back to its original price so that you can get your money back. This tactic does not work in all cases, so you’ve got to wake up!
Sometimes, the stock continues to slide until the money is worthless. In that case, you also lose the chance to use your money for something profitable (while it still has worth).
- Investing in a business model that you cannot explain
It is usually safer to invest and diversify your portfolio in mutual funds or exchange-traded funds (ETFs). It helps you avoid the danger of investing in an unclear process. Warren Buffet advises that you for an individual stock, only invest business models you understand.
To Wrap It Up
It’s okay to make mistakes with investments; it happens a lot. However, it’s fatal to fail to recognize your errors and retrace your steps.