5 common investment mistakes and how to avoid them
When you are first starting out investing it is easy to make mistakes that can end up costing you money. To help prevent that from happening, we explain five common rookie mistakes and how to avoid them.
One of the easiest mistakes to make when you are new to the investment world make is to invest in something you don’t understand. It is easy to be swayed by new investment products that offer potentially high returns or to want to invest in the latest new trend. However, if you don’t fully understand a financial product it is best to stay away.
Understand your investments
2. Listening to other people’s “expert advice”
Another common investing misstep is to listen to other people’s “expert advice”. If you have friends or co-workers who tell you to buy this financial product or invest in that ‘hot’ stock because it’s a “great investment”, you are better off staying clear. It is always better to make your own investment decisions and invest in what you believe will generate strong returns.
Diversify your risk by purchasing different financial assets
3. Failing to diversify your portfolio
Another common investing mistake is to “put all your eggs in one basket”. In other others, to invest all your funds into a single stock for example. When it comes to investing, it is important to diversify your risk by purchasing a range of different financial assets such as stocks, bonds, and property.
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4. Letting short-term volatility scare you
As an investor, you should be focused on the long-term returns of your investments. Short and medium-term volatility, such as a 5% drop in the stock market within a month, should not really affect you as you are only interested in how your portfolio will perform over a 10 to 20 year period. So don’t be scared by temporary market corrections.
5. Not regularly checking in on your investments
While it is not recommended to check on your portfolio everyday as you may become too concerned with short-term volatility, it is important to check in on your investments regularly. Whether you are invested in the stock market, have placed funds in a range of peer-to-peer loans or have an investment property you are renting out, it is important to make sure that your investments are on track and that there are no issues or unexpected losses.
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