Investing is complicated. If you’re just getting started, you may be worried about making a wrong move that costs you big-time. Here are seven mistakes to avoid when investing.
Putting All Your Eggs in One Basket
One of the biggest mistakes you can make is to put all of your investment money into one stock or vehicle. When you invest in only one or a handful of stocks, there’s little room for error. If something goes wrong, you could lose everything in one swoop.
Invest in a variety of stocks and investment vehicles to reduce your risk.
Letting Your Emotions Run the Show
It’s easy to let your emotions rule the decision-making process. When a stock falls, you panic and immediately want to sell. You get hyped about an investment, and you buy right in without doing any research.
Before you buy or sell, do your research and make sure that your decision is based on logic – not emotion.
Waiting Too Long to Dive In
Don’t wait to start investing. Today, investing is more accessible than ever. Just about anyone can get started with just a small amount of money. If you’re not sure where to start, there are robo-advisors that can help you get on the right track, such as:
Paying Too Much in Fees
Fees can eat into your returns, and that can have a snowball effect over time. Choose brokerages that have lower fees, such as:
You can also invest in exchange-traded funds and index funds that are low cost.
Having Unrealistic Expectations
Many people think that investing is a quick way to get rich. But the truth is that building wealth through stocks will take time.
On average, the market’s long-term return is about 10%. Some years it can jump to 25% or more, but it can drop by just as much.
Have realistic expectations, and don’t use money that you’re going to need in the next five years.
Trusting the Wrong Sources
Don’t put all of your faith in TV talk heads and hyped up stock tips. Remember that anyone can recommend a stock, and even experts can get it wrong. Do your own due diligence, and choose your investments based on your own research.
If an investment sounds too good to be true, it probably is.
Investing in Something You Don’t Understand
Warren Buffet has a rule: He doesn’t invest in anything that he doesn’t understand. That’s a good rule to follow. If you don’t understand how the business works, how it makes money or how it may possibly grow in the future, it will be hard to make decisions on when to buy and sell.
When you choose your investments, you must understand how the companies make money, their financial health, their competitive advantages and risks, and their future outlook.