Many of us have dreams of investing, either to make money, to have something to fall back on, or to prepare for the future. Investing is very challenging, which makes it very easy to fall into some common traps that many inventors fall into. Below, we will look at some investment mistakes you should know about so you can avoid them.
Not Understanding the Investment
Although passion is very important when investing, it should not lead you to invest in businesses you do not understand. You want to invest in businesses or ventures you can keep an eye on or control, so you need to understand them thoroughly.
Some pitfalls to avoid include investing in companies whose business models you do not understand or whose history you do not know.
Staying with a Company When You Do Not Need To
There are a lot of cases where investors fall in love with a company or investment option and forget that they invested in it to make money. In these cases, these investors go down with the company or investment because they do not want to let it go. It is important that you learn to let go of companies or investment options that change too much and are no longer what you invested in initially.
Choosing the Wrong Partner
Sometimes, you need someone to partner with so as to make your investment venture successful. It is important to choose the right partner, as choosing the wrong one can hobble you in so many ways. For example, your partner might have a criminal record that makes it harder for you to get financing or for other investors to trust the business you build with your partner. This is why it is so important to look into an investment partner’s past to see if there is anything there that could hurt you both.
You could start your search at Public Records Reviews, which lets you find publicly available information about your investment partner. Using just their first and last name, you can find out if they have misdemeanor records, any lawsuits, or convictions that might make it harder to work with them.
Investing, especially for the long term, requires a lot of patience. A slow and steady approach works better than trying to go for fast and easy options. In this regard, you need to set realistic expectations about the growth of your portfolio and the amount of time it will take to get it to where you want it to be.
Waiting for Evens
Waiting for evens means waiting for a losing stock or investment portfolio to get to at least the buying price so you can sell it. This is a bad strategy for two reasons. First, you may hold on to a loser until it becomes worthless, in which case you lose all your money. Second, there is an opportunity cost for what may be a better use for your money should you sell or get rid of the losing investment.
Failing to Diversify
Any investment advisor will tell you that diversifying in the best way to go. Although experienced investors can make money by investing in a few similar options, you should not do this. Instead, try to diversify your investments as much as possible. A good rule to follow is to never invest more than 10% of your portfolio to any one type of investment.
It is also important to remember not to spread yourself too thin, something some new investors do. If you do this and have too many investments to control, you might not have enough time or resources to keep track of them all, so you may not know if you are holding a losing investment until it is too late.
Not Keeping Emotions in Check
Fear and greed are the two biggest emotions you should keep in check if you want to be a successful investor. Fear makes you sell too fast and too early, so you will not have time to see the full potential of your investment. Greed leads to buying too much or buying because others are making money off an investment.
Focusing on the bigger picture lets you see the long-term strategy, which has been proven to be the best way to see a return on your investment.
High Investor Turnover
Investor turnover means moving from one investment to another. One thing many investors do not think about, especially new investors, is transaction costs. Dumping one investment and getting into another incurs transaction costs. If your turnover rate (the rate at which you acquire and get rid of investments) is too high, the transaction costs could eat into your profits and kill your revenue.
Investing is a good way to make money, but it is also a good way to lose it. If you plan carefully and have the right strategies in place, you will be a successful investor. Also, learning to be patient and not letting emotions dictate your investment options and actions are good qualities to have.