Below are seven mistakes you must avoid while investing.
1. Being Emotionally Invested
The number one mistake people make is letting emotions guide them in making decisions. Investment decisions should be logical ones, not ones based on emotion. Emotions can cause you to invest in the wrong stocks, invest at the wrong times and sell at the wrong times.
Emotions are not wired the same way as logic. Under the ruling of emotions, you can become fearful at an economic downturn and sell when the tumultuous moment will pass. Giddiness at your early successes can urge you to take unnecessary risks that will, undoubtedly, cost you money.
Logic will tell you to buy a stock that hits bottom, stay invested even in the bad years, and reinvest in a variety of things you may not completely understand, but are expected to emerge as a winning stock.
2. Not Planning Ahead
Another major mistake new investors make is not having a plan first. Without a plan, you will always be buying when you should be selling. You are too aggressive and trade too quickly.
A plan should focus on both your short-term and long-term goals. It should include both an exit strategy and a plan to enter back into the market. It should also include how you want to either expand your investments or scale back as you grow older.
3. Trading Too Often
Investing can be addictive and those who make a few excellent choices, especially early on, feel they can keep that run going. However, trading too often actually loses money because of investment fees and the risk of trading and selling at the wrong times.
Along with that, experts advise not to chase a trend. A lot of new investors want to hop on the next big thing. That may end in a bust, like the dot coms or tech or that doesn’t get off the ground (see: Bitcoin: Fake Gold for Millennials). Be sure to research companies before investing and choose companies you can stick with for the long term.
4. Having Unrealistic Expectations
Investing is a long-term venture, but some people think they should see dramatic results now. That attitude leads to many of the other problems like trading too often and letting fear rule your choices.
Typically, the result is they sell when the market tanks out and buy when it is on the rise. Smart investors do the opposite, buy when it’s low and sell when it’s high.
For most investments, it takes between five and 20 years to see a return. You will not be rich overnight. You must be patient and understand the market can go up and down many times in that time frame.
5. Paying Expensive Consultant Fees
Some new investors think that getting the best advice comes at a premium price. That is simply not true.
In fact, many investment experts say to go to the broker with the cheapest rates. They still offer knowledge to help you pick your investments, but you save money in the end.
6. Investing Without Keep Cash on Hand
Many people, in their quest to be rich, invest with everything they have. That is not a good idea.
You should have savings to last you at least six months and it’s a requirement to pay off all your debts before you invest. Also, your savings should be able to be accessed easily, in case of an emergency.
Having cash on hand means you won’t be forced to sell your investments. A forced sell usually means a loss for the seller, either out of bad timing or because the investments weren’t allowed to grow.
Having cash on hand and debt paid off will not only give you more money to invest, but will also give you peace of mind. That means there is less chance of you relying on your emotions.
7. Creating an Unbalanced Portfolio
Some new investors are way too aggressive in their investments, while others invest solely in low-interest CD’s or bonds. The smart choice is to have a diversified portfolio with some aggressive stocks and some conservative long-range options like bonds or precious metals.
Today, there are even options to diversify your retirement portfolio, through a self-directed IRA where you can invest in gold and silver. These precious metals IRA companies provide services to help rollover your existing plan into a self-directed IRA to give you greater control of your asset allocation. Here are some of the best IRA companies to choose from.
Most advise you invest more conservatively as you grow older with only 10 percent in aggressive stocks as you reach retirement age. Younger people can start out with as much as 80 percent in aggressive stocks.
Knowing what the risks are, doing research and understanding how to achieve your goals are some of the ways you can make investing work for you. The key is patience. It takes years for investments to pay off. Then, you will see the fruits of your labor.
About the Author:
David Warren is the senior writer and lead researcher at HardStacks. He has been a financial engineer for over 30 years and has been investing in alternative assets since the Great Recession of 2008. He has a true passion for learning about economic cycles and educating others on how to protect and grow their wealth by investing in precious metals, real estate and cryptocurrencies. Follow him on Facebook.