Picture the scene: You’ve got a little money saved up and you want to dive right into the fascinating world of investment. You do some research, pull the trigger and watch the performance of your investment like a hawk.
Then it plummets! While investment is a game of risk by its very definition, most people who play with it do so without being aware of the most common, basic mistakes made by newbies every day and year.
When executed carefully, however, it’s a great way to multiply your money modestly to help you achieve your financial goals. With that in mind, we’ve gathered a few short examples of mistakes beginners make in this delicate subject.
With popular investment subjects such as cryptocurrency dominating the headlines, now is the time to take a reality check and consider the basics.
They don’t diversify
Diversifying is the best way to mitigate and reduce the risk that’s a part of any investment plan. It’s recommended in just about every scenario you could think of.
It’s also something that beginners commonly forget to do. Emotion usually comes into play; the person new to investing finds a stock or company they have a personal connection to and they throw their eggs into one basket.
It’s an easily made mistake that will do nothing other than cause stress and increase the odds of losing money. It’s important to keep in mind that stability is a big plus when you are investing – having your money in one subject might seem tempting if it explodes in value, but is, in reality, a very poor choice.
They don’t learn how they respond to risk
We all vary in how we manage risk and how it affects our lives. A common complaint of the new investor is that they can’t stop thinking about the performance of their chosen companies and products.
If you aren’t careful, you can quickly find yourself suffering from the physical and mental downsides of elevated stress levels. If that’s happening to you, take a good look at your investments and consider making some changes.
Examples of changes include moving your investments over from volatile, fast-moving items to the slower paced – but more guaranteed – growth of established companies like Google and Apple.
They don’t set a time limit
It’s important to know how long you’re in the game for. Do you want to invest in a certain area for a month, or a year? Longer, even?
If you don’t set yourself a hard limit on when you will pull out or review your situation and adjust accordingly, you’re simply setting yourself up for indecision. It’s an easily made mistake and it can paralyse your decision making, leaving you unable to react quickly as you sometimes must.
This feeds into the next, most important point.
They don’t have a goal
Making money isn’t quite enough when it comes to having an investment goal. Depending on how much capital you have available to you, you’ll want to get specific about the ideal outcome of your activities.
For some, this could be earning enough money on your investments to create a solid safety net. Others may want to contribute a specific amount towards their retirement. Loftier goals can include large life purchases such as a car or the down payment on a property.
Having a goal in mind will frame your investment activities and encourage you to act carefully and strategically. It will make it easier for you to react to fluctuations in the market and will give you a comforting end-goal that will help you stay the course through the ups and downs you’ll be sure to experience.
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