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The biggest mistake that many people make when they start investing is thinking that it is easy. Investing takes a lot of discipline and the ability to manage risk and handle the anxiety that can come with it.
Investing is about more than money; it is about information and strategy. Here is our list of common mistakes investors make at the beginning, so you know what to look out for when you begin investing in businesses and markets.
Failing to Diversify Investments
Diversifying your investments is one of the most important strategies for investors to follow. It gives you the ability to increase your investments without having to experience volatility. Diversifying is investing in different assets or companies that go through different cycles of growth.
A simple example is investing in Business A, that usually posts strong profits in the third quarter, but less in Q4. By investing a similar amount in Business B, that posts strong end-of-year profits in Q4, the drops in stock price cancel each other out and eliminate the risk of losing money in either quarter.
Expecting Instant Returns
Investing in businesses and markets is not like speculating or day trading. Investing takes a long time to show a return, and it often takes more thought and effort than speculation or quick trades. The growth is slow, but it gives an investor a consistent return that they can count on, hopefully.
Without initially investing a huge amount, you won’t see a huge return. Too many investors think they will start to see an influx of cash soon after investment, but it takes time to get a return from the market. You are in for the long-haul, but in time your investments will grow.
Failing to Plan for Time
Seeing as we are discussing time; it is important to decide how long you are going to invest in a product or instrument before you invest your funds.
Longer term investments are less volatile, and offer investors lower growth that builds over many years or sometimes decades. A quick return can still take a year or more, and will often be focused on riskier investments that will see a lot of market volatility. With risk comes reward, and these types of investments can be very profitable if you are lucky.
Neglecting to Rebalance
Many investors forget this step, and it costs them money. Your portfolio of stocks should be monitored and analyzed regularly to make sure you have a balance of stocks and are not over-exposed to risk.
You should choose a balance of assets in your portfolio, and monitor the assets appreciation and depreciation in value. As time goes on, stocks that depreciate in value will start to eat into your potential profits, by decreasing the overall value of your portfolio. You need to rebalance these stocks, assessing risk, so you can sell off some assets to keep your portfolio balanced and profitable. This can be time consuming and involve a lot of decision making, which is why some beginner investors neglect the practice, but it will make you a more profitable and successful investor.
Neglecting to Balance their Lives
Possibly the biggest mistake investors make is not keeping their life balanced, and becoming too involved in investing. It is important to make sure you diversify your life, as well as your stocks, and invest in yourself and your health as well as businesses.
Health and personal wellbeing are important to everybody, and you should make sure you are investing in yourself while you invest in your future. Not enough people get enough sleep, and if you are going to be ready to work when the markets open, you are going to need a good night’s rest. Look here for the best mattresses in 2020 so that you can make a great investment for your future with a new mattress.
Avoiding Index Funds
Not enough beginner investors use index funds, but these are a great way to manage risk and diversify your investments, and are used by fund managers with decades of experience in the markets.
These funds are for portfolios that track the performance of markets like the S&P 500 or the FTSE 100. These markets are steady, and can provide a good long-term return that can offset losses in other markets or businesses.
Hopefully you can avoid making mistakes at the beginning of your investment career by following some of the tips in this guide.
