10 mistakes newbie investors make and how to avoid them
Storytime:
I worked as a Licensed Financial Specialist for many years selling insurance, and annuities. I worked regularly with many licensed advisors who helped complete my financial offerings for clients.
I’ve collected many nuggets of wisdom from them over the years but this one is likely the biggest mistake unskilled investors make…and that is… pulling out of the market when it starts going down… most of the time is the worst thing you can do.
Once you sell your stocks, bonds, or mutual funds, you have realized whatever loss or gain there is. We must accept and expect that their value of them will fluctuate, much like real estate. When local property values go down, do you immediately go out and put your home on the market? Of course, you don’t without some kind of other extenuating circumstances, so why do people do this with their investments?
Mostly it’s emotional, they look at stocks and investment accounts like traditional bank accounts, numbers on a page instead of a hard asset like a house, and when those numbers start changing our mental reaction is “NOOOO bank accounts aren’t supposed to go down!” For many newbie investors, this causes a gut response to stop the bleeding and sell sell sell.
What we have to remember is the trend of the stock market is up over time. Annualized over the last 30 years it has gone up an average of 8% per year. Sure some years will be negative but wealthy people consider that a sale! So the best thing to do during a bear market is to buy buy buy!
Investing is a great way to build wealth, but it's important to approach it wisely. Here are the top 10 mistakes to avoid when investing:
Not having a plan: Investing without a plan is like driving without a map. It's important to have a clear idea of your investment goals and the steps you'll take to achieve them.
Putting all your eggs in one basket: Diversification is key to managing risk. Investing all your money in one stock, industry or market can lead to significant losses.
Following the crowd: Just because everyone is investing in a particular stock, doesn't mean it's a good idea. Do your own research and make informed decisions.
Trying to time the market: Trying to predict the market's highs and lows is a risky game. Instead, focus on investing for the long term.
Ignoring fees: Fees can eat into your returns over time. Make sure you understand the fees associated with your investments and look for low-cost options.
Not rebalancing your portfolio: Over time, your investments may become unbalanced due to market fluctuations. Regularly rebalancing your portfolio can help you stay on track.
Letting emotions drive your decisions: Investing can be emotional, especially during market downturns. It's important to stay rational and stick to your plan.
Investing without understanding the risks: Every investment comes with risks. Make sure you understand the risks associated with your investments before you invest.
Chasing high returns: High returns can be tempting, but they often come with higher risk. Don't let the promise of high returns cloud your judgement.
Not seeking professional advice: Investing can be complicated. Seeking the advice of a professional can help you make informed decisions and avoid costly mistakes.
By avoiding these common investing mistakes, you'll be on your way to building a strong investment portfolio. Happy investing!
