I have worked in finance for over seven years. I’ve seen investors make hundreds of mistakes. Are here 15 of the most common (You’ve probably done at least two of these), comment Gav BlaxbergDirector of Financial wolf.
1. They invest in emotions. You should not sell just because the price of a stock falls. You shouldn’t buy just because the price of a stock goes up. Invest based on company performance, not stock price movement. The stock market is volatile in the short term, but in the long term it goes up.
2. They don’t understand your time horizon: If you don’t need the money for at least 10 years, it shouldn’t matter how the stock performs today. If you need the money in less than 10 years, it shouldn’t be 100% in stocks. Find out when you need the money and invest with that in mind.
3. They don’t understand their risk tolerance – There are many factors that affect risk tolerance: Age – Time – Income – Obligations. If you have a low risk tolerance, you should take fewer risks. If you have a high risk tolerance, you can take more risks.
4. They follow the herd – Just because a lot of people are investing in a stock does not make it a good investment. And just because someone has researched an investment doesn’t mean you should base your investment on that research. This is how bubbles and crashes happen.
5. They chase performance: When a stock does well in the short term, it indicates one thing: the stock has already done well. But there is also one thing it doesn’t show: whether it will continue to work well. Short-term performance is not indicative of long-term returns.
6. They are impatient. If your goal is to build wealth, you need to understand one thing: It’s a marathon, not a sprint. If you are 20 years old, you have more than 40 years to invest. Instead of trying to get rich quick, you should let time do all the heavy lifting.
7. They do not diversify: your risk should not be concentrated in a single fund or company. Diversification spreads that risk, so the chances of losing money decrease. If you choose individual stocks, aim for between 10 and 20 stocks. If you invest in index funds, look for between one and seven funds.
8. They do not invest for the long term. It is okay to invest in the short term. I’ll do it myself. But the problem is not having a long-term portfolio to generate wealth. Short-term investments generate money, but long-term investments generate wealth.
9. They invest the money they need. If you need the money in the next five years, don’t invest it all in stocks. If you need the money in 5 to 10 years, you can invest most of it. But you must agree to leave it alone if the market falls. This saves you money and preserves your capital.
10. They invest when they are not prepared. You don’t have to be an expert to invest. But you need to know what you are doing. If you are a beginner, avoid: Options – Day trading – Penny stocks. And have an emergency fund and no credit card debt. You’re good to go.
11. They get stressed about what they can’t control. When you stress about your investments, you will act irrationally. You will sell at a loss. You will buy a stock after it rises. Or you won’t invest at all. Instead, accept that you can’t control what the market does day to day.
12. They focus on the wrong type of performance: Short-term performance does not dictate long-term performance. Focus less on the short term and more on the long term. Because in the short term the market goes up and down. But in the long term most of it increases.
13. They are glued to the markets. You are anxious because you always look at your wallet. You become sensitive to every price drop. Look at your portfolio only when you have a plan. If you’re not buying/selling, there’s no reason to check.
14. They delay the investment completely. I’ve heard countless stories of people who waited on the sidelines before starting to invest. They wanted to know “enough.” Enough is enough sooner than you think. Don’t let this stop you from investing directly.
15. They chase dividend yields: A high dividend yield does not automatically indicate a high-quality stock. Instead of focusing on how high the dividend is, focus on how long the dividend has been paid.
There you go! Fifteen of the most common mistakes investors make. These prevent you from reaching your potential.
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