7 Investing Mistakes You Should Avoid
Most of us often get bamboozled when it comes to investing. Investing right can definitely lead to wealth creation and that is what we all look forward to. However, a wrong move can rob you off your hard earned money. Investing is an art and it can be perfected with investment of your valuable time and proper learning.
Investing right is the key to reap benefits. Even the most experienced players of investing tend to make mistakes. Here are 7 investing mistakes you should always avoid.
1. Not Formulating an Investment Goal
A proper planning to attain a desired goal is the rule of any game. You must figure out your reasons for investment. Most people invest keeping retirement in view but it may not be the reason for everyone. For example, if you want to invest for your children’s higher education then your investment plan will be different from the investment for retirement.
You may have more than one reason for investment and for every criterion, the investment plan can differ. So, if you want an investment with consistent returns, take some time out to list your reasons for investment.
2. Falling for the Stocks that Appear Low in Price
Picking a stock by comparing its current price with a yardstick of 52-week high or low is one of the common mistakes most people have been practicing. Every fallen price of the share doesn’t make it a good buy. You must evaluate the reasons for the price fall of that particular stock. The price of the stock also falls when the present CEO of the company is replaced or it may fall due to other internal disturbances in the company.
If the stock of the company was traded over 20% higher the previous year, it’s not guaranteed that it will reach the same point this time too. Do your calculations and learn as much as possible about the company before investing in any stock.
3. Holding on to the Falling Stock or Averaging Down
Even after much contemplation, the price of your picked stock may fall steeply. We humans are prone to mistakes and even a genius may make a mistake in selecting the right stock. Picking the wrong stock is a small mistake but holding on to it even after the price keeps falling could be dangerous. And the gravest mistake would be to buy more of the same stock at a lesser price to average down the total cost.
A wise decision would be to accept the mistake and get rid of that stock which may increase your loss with every passing day. You need to do a detailed research to find out the reason of the falling price. If it appears too uncanny, sell it and invest in other profitable stock; this way you can make up for the incurred loss quickly.
4. Taking Advice From the Wrong Financial Advisor
It’s a myth that every financial advisor knows what he is doing and always makes right choices for you. Just like we have good and bad in all other aspects, the same holds true for financial advisors as well. You need to be tactful in catching a good advisor. Most of the financial advisors work on commissions, hence, they try to push you a certain investment that may yield higher commission for them but may not work so great for you. You must pose a lot of questions to the advisor to gauge his knowledge.
Many times they may not be able to answer satisfactorily to your simple question as to why you should invest in that particular plan. Also, a good advisor will always ask you a lot of questions to understand your need of investment. Often free-based advisors are trustworthy as they do not work for commissions and hence may not try to push you an investment you do not need.
5. Not Diversifying
A common saying goes “do not keep all your eggs in one basket”. Investment primarily works on this fundamental truth. Never get emotional and keep investing in one kind of industry or stock. In case of ETF or mutual fund portfolio, allocate funds to all major bonds. You must diversify your investment in different assets like bonds, stocks, metals, and real estates.
In case if any one of them does not perform well, you will not have to suffer a major loss. Diversifying is the key to a successful investment. A good financial advisor will aptly take you through the benefits of diversification.
6. Relying a Great Deal on Tips
One of the things that will never work in your personal investment is unauthenticated tips about a stock from others, be it you friend, relative, media, financial magazines or even your financial advisor. No one can measure the market accurately. Your friend might have made huge money from a stock but taking a tip and investing in the same stock may not give you the same result.
The reason for the good performance of the company at that particular time could be different which may not hold well always. You must research thoroughly before investing. Media plays havoc in giving must-buy tips. Remember those are just speculative gambling. A good investment can never be done on tips. You need to do your own homework.
7. Day Trading
Day Trading may sound lucrative but it’s the most perilous way of investing and can only be handled by seasoned traders. First of all it needs huge initial investment. The software for day trading itself costs 50,000 dollars and to make the profit in a day, you will need an equal amount of money to buy the stocks.
It’s quite difficult for common investors to maintain an efficient day trading strategy hence it’s not advisable to venture into day trading unless you are an expert and have access to speedy order execution.
The bottom line is: plan your investment strategically and look for long term benefits from your investment. Do a thorough research before investing.
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