10 Mistakes You Will Make When You Start Investing
Investing is both an art and science. It involves real-life parameters including algorithms and macroeconomic/microeconomic data, but at the same time holds gut feeling, intuition, and instinct as vital tools for making effective investing decisions. For those who’ve just started their career in investing, here are 10 mistakes to avoid.
1)Investing Will Replace Your Full Time Job
Never use investing as a fallback plan to leave your full time job. A long-term investment portfolio is meant to financially support you in your retirement years, not to supplant your current job. Novice investors fool themselves into thinking that they can live off of their dividend yields and principal profits.
2)Investing is a Linear Path
A strategy that makes Warren Buffet billions of dollars in his lifetime won’t necessarily make you a billionaire if you use it. There’s no one-size-fits-all strategy nor a “Holy Grail” system in investing. Although it’s good to absorb information from reliable sources, don’t think you need to follow their approach step by step.
3)You Are a Risk Taker
Just because you say you’re a risk taker, doesn’t mean you actually embrace the possibility of losing. Novice investors will start off respecting stop losses and executing trades as planned. As they lose money, however, they begin to slip from their pre determined risk parameters and instead gamble their savings.
4)Solely Focus on Investing
Remember, investing is only a part of your cashflow and finances. Sound financial planning is critical to ensure your investment gains are reallocated to the right places. Unfortunately, investors get sucked into focusing solely on the daily ups and downs of prices that they miss the forest for the trees.
5)Your Portfolio Should Be Highly “Diversified”
Investors have slightly different stances when it comes to portfolio diversification. Successful investors like Warren Buffet, George Soros, and Paul Tudor know how to diversify their holdings in a way that risk is minimized while potential gains are maximized. Novice investors, on the other hand, merely buy and sell anything they can that they perceive to be complete opposites, and then label it as a “diversified” portfolio.
6)Choose Any Broker
Having a good broker can be the difference between success and failure. A good broker provides cost-effective round trip fees, intuitive and easy-to-navigate trading platform, and round-the-clock technical support for platform or account issues.
7)Chase High Dividend Stocks
Stocks that pay juicy dividend yields to its investors seem like the no-brainer pick for your portfolio. Albeit, it’s important to understand that high dividend stocks, with some reaching upwards of 15 percent, do not always pay their dividends, especially during times of weak economic output.
8)Invest When You’ve Got Time
Investing as young as possible amplifies the gains you get from your investment account through the tried and tested strategy of compounding interest. Assuming that you reinvest the interest and dividends paid, your retirement savings can grow relatively quicker.
9)Listen to Pundits
Self-proclaimed pundits in financial channels and blogs may have some good insight to provide you, free of charge. It’s important not to take their advice as the final word for your investment decisions and instead do your own meticulous research.
Buying and selling financial assets on a daily or weekly basis can open up more opportunities to generate profits. However, trading too frequently can also act as a double-edged sword that can harm you financially if uncontrolled. Try to increase your trades per day or week as you gain more experience and insight into the realm of investing.