Investing mistakes not only cost you money but can also make you feel defeated. And when your pockets and mind are rattled, it leaves opportunities for even more costly mistakes. Yet, when you are first getting started in investing, there are a lot of common mistakes you’ll want to avoid as best as possible.
It can be a great learning experience, but you still want to minimize potential losses that set you back. Even investing experts occasionally make mistakes, it’s a part of the process.
However, to help you on your investment journey, I’m sharing with you the common investing mistakes most beginners make (and should avoid).
1. Trying to Time The Market
The stock market goes up, the stock market goes down. You’ll also read and hear many financial experts making predictions about when to buy or when to sell in bullish or bear markets. But timing the market applies to other investing markets too, not just the stock market. Either way, 99% of the time those financial experts are wrong.
The stock market, of course, has some patterns and historical data that can be helpful signals. But that does not always mean the market will do what you think.
2. Not Researching Before Investing
You’ll come across tons of articles, emails, and T.V. personalities talking about stocks to pick or where you should invest your money. While there might be some interesting information, always do your research before investing.
Do not blindly trust recommendations or follow others without understanding what you’re investing in. It goes with real estate, businesses, art, anything. There are plenty of stock screeners, tools, and other investing websites that give you information about companies, funds, etc.
3. Not Diversifying Your Investment Portfolio
Everyone’s investing goals, current situation, and status is different. So your investment portfolio and choices are probably unique from the next person. But one commonality that every investor should have is that they are diversifying their investment portfolios.
By putting all your money in one area, you put yourself at extreme risk. Sure, it might be doing well for awhile, but it can quickly crash and burn. When you invest, you should be looking at different assets and in different sectors that can weather against downturns and help your portfolio stay balanced.
4. Thinking Investing Will Make You Rich Quick
Investing can be exciting and it feels good to put your money to work. Out of these investing mistakes, many who are just getting started are looking to get rich quick. There is always a chance you make some good money quickly, but your mindset needs to shift to a long-game approach.
Building wealth can take time, but your money can exponentially start to grow over time due to compound interest and growth of markets.
5. Investing Too Much Money Before You Are Ready
Not everyone at the start will have a decent amount of money to invest, but even if you do, start slowly. When you are first learning and armed with some knowledge, you will make some investing mistakes.
It’s great to learn from, but you also what to ensure you aren’t losing thousands of dollars. If you are investing on your own outside of a company 401k, start off small and work your way up to bigger investments.
6. Expecting Zero Risk When Diversified
Even if you have someone helping you and/or you are well-diversified, don’t expect to have zero investing risk. No matter how good your portfolio and decisions are, there will always be ups and downs in stock market, real estate prices, etc.
You need to understand going in that there is always a chance to lose money, have downtimes, or experience some wild markets. By coming to terms with this, sticking to your plan, and staying focused on long-term investing goals you’ll learn to avoid the “Selling low, buying high” trap.
7. Not Knowing Why You Are Investing
Is your purpose to have assets for the future, accelerate towards retirement, make passive income from your dividends, retire early? Then you should also have a plan in place. What assets are going to get you to your goals, how much can you afford to risk currently, what and where are you investing in.
Those goals and your plan can change overtime too, which is perfectly fine! My own investment plan is certainly different now, than five years ago when I first started.