Common Mistakes of new Investors

Investing is one of the best things you can do with your money. It offers an opportunity for your money to grow significantly and provide you a hefty sum in the future. However, investing is neither simple or easy. You must have the adequate knowledge and experience in order for your investments to succeed. Take note that your investments will never grow on their own especially in its initial stages.

New investors are prone to commit mistakes because of their limited knowledge and lack of experience. Though mistakes are stepping stones to success, you can take the fast track by identifying and learning from the mistakes that most new investors make. Here are some of the most common mistakes that new investors make.

1.) Getting too emotionally involved in their investments. Some people just fall in love with their investments which makes it hard for them to let go or apply some changes. Being emotionally involved results to unfounded bias to a certain investment. It clouds sound judgment and leads to erroneous decisions.

Improving your knowledge on a particular investment can make you control your emotions. Learn technical and fundamental analysis in stocks, find a reputable and stable mutual fund company, learn everything you need to know about real estate, etc. Knowing what you do and doing it right is the key in successful investments, not by feeling your way through.

2.) Trying to beat the market. Never set your sails against the wind. In the stock market, there is an adage saying that “the trend is your friend”. No one can beat the market. Anyone who thinks that they can outsmart and outdo the market will always lose. The market will always go where the general sentiment is so going against the sentiment of the other investors would be disastrous.

No one can beat the market trend. Successful investors learn where the market trend is going and adjust their strategies in accordance to such trend. Gather relevant information about the investment sector that you’re in and identify if it is a good time to invest, sell, or stay on the sidelines and wait for a better time.

3.) Investing on hype. For many reasons, several sectors and industries are so hyped up. It could be a result of bigger market players luring smaller ones to invest and increase their gains or companies themselves advertising their products to increase profit. Either way, investing through hype is never worth it. One popular example was during the real estate crash where people are so pumped up in investing in real estate which became so saturated.

Facts never lie thus always aim to have reliable data in your hand so you can avoid investing through hype. Always discipline your emotions and let your sound judgment rule over.

4.) Low price means higher potential. Some investors focus on the price of a certain investment rather than its value. For example, some people would opt for a stock that is worth $5 than another one that is worth $20. Mathematically, you can have more shares if you buy stocks that cost $5 but it doesn’t say much about its growth potential. Investments are priced according to their value. The greater the value of a particular investment, the higher its price.

Ideally, investors are always on the look for undervalued stocks, properties, and opportunities. Undervalued means that their potential is good but are priced way lower than they should be. In time their real values will come out and investors want to enter before that happens. Always stay updated and always stay on the hunt. Undervalued investment opportunities are everywhere.

5.) Poor money management and investment strategy. Most people invest and lock their focus on the gains. Because of the unpredictability of investments their value would go down in most cases. Focusing solely on the gains put these people in a very awkward situation and panic. Because they are unprepared, the pull their investments out resulting to losses.

In getting to any investment position, always identify your entry and exit strategies. Set target prices where you would pull out your earnings and set a specific price where you would cut your losses in case the direction of your investment goes down south. Develop a trading or investment plan that works and you’re comfortable with.

6.) Putting all their money in one investment. Putting all eggs on one basket is never good. If the basket falls, all eggs might break. The same is through in investments. If you put all your money on a single investment, you face the risk of losing a significant sum because once the investment fails you’ve got no backup to turn to. Many people pour in their money on their dream investments without realizing that, with their lack of sufficient knowledge, they are putting themselves in great risk.

Diversification is the key. You have to cover every possible financial loopholes that you have. Invest in health care and insurance to cover your income generating capacity and invest and protect your investments. Invest your money in different ways such as putting up a business, putting it in mutual funds, stocks, and other paper assets, or invest in small businesses that have good potential of growth. This can make you see which ones are doing great and cover your losses on the losing ones.

The mistakes that new investors make normally are results of lack of knowledge and experience. Mistakes are a part of the learning process that leads to success. However, it isn’t necessary for you to undergo such mistakes in order to succeed. Learning from others experiences can make you a better investor and increase your chances succeeding.