Some say that it is best to learn from experience, but when it comes to finance and investing it can be much more prudent to learn from the mistakes of others. Take a look at some of the common mistakes of new investors so you can sidestep these pitfalls while you learn the tricks of investing for success.
When you are young you think that you have lots of time to start thinking about investing, but the sad truth is that putting off investing could be costing you a lot more than you realize. There is no time like the present when it comes to getting started on your retirement fund and lots of other investment goals, because the longer your funds are left to grow the more you have in the long run and the less you have to put away to get there. There are lots of reasons you might procrastinate. From thinking you don’t have enough money to start investing to believing that consumer spending and satisfying other more pressing wants is a better use of your money. At the end of the day, if you haven’t started investing you are already wasting valuable time, regardless of how old you are and how long you have started working.
Another newbie investing mistake is putting all your eggs in one basket. Diversification helps to spread investment risk, so if one fund or asset class performs poorly it does not bring down your overall portfolio. By ignoring this sound reasoning and dumping all your money in one place you leave yourself vulnerable to the risk of losing everything you have.
Failing to Prioritize
It is quite normal to have many competing needs and wants, but when it all comes down to it you need to choose how to spread your limited income in a way that satisfies you the most. Failure to prioritize can get you part of the way on many different fronts while you achieve very little. It is much more productive to list the things that are most important and then work towards those first.
Allowing Others to Make the Decisions
Even if you know very little about investing or personal finance you should not hand over the reigns to your finances to any one individual. You need to ask questions and get a better understanding of why you are getting into certain types of investments so you are aware of where your money goes. Eventually you may be able to take charge of your investments but at the very least, you will know where you are invested and to what extent.
Mistaking Speculation with Investment
New investors are sometimes quick to make decisions based on limited knowledge but this is not investing but rather a type of speculation. Even a risky investment decision is done with the full knowledge of what is at stake and the probability of things turning in your favor. Speculation occurs when there is a lack of information and acting on a hunch certainly does not qualify as investing.
New investors face many challenges partly because of the nature of the financial landscape and partly due to inexperience, but hopefully highlighting some of these common errors can make the road to investing success easier to travel.