Investing Mistakes that You Should Always try to Avoid

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Each person’s investing strategy will not be exactly the same as the next person’s. On the other hand, there are general things that an investor should try to avoid at all cost. Here are some of them. 



investing mistake concept money in a jar

Timing the Market

Day trading has gained popularity in part due to films and social media, attracting many traders because of the high rate of returns that it provides.  Perhaps more importantly, it’s been personified as a get-rich-quick scheme. But that’s not quite the truth.

Day trading or attempting to time the market faces you with a high degree of risks, usually ending with a loss of principal and even more than that.

Rather than trying to time the market, it’s better to slowly build up your portfolio and use a strategy called dollar-cost averaging to let your money grow. Of course, there are successful active managers. However, risking your retirement in an attempt to make extra money is not a good plan.

The better plan is to look for mutual funds and exchange-traded funds (ETFs) that suit your investing goals, and use them to create an investing strategy that fits your needs and enables the more effective build-up of your wealth over time.

Faulty Risk Assessment

Bear in mind that the market can take away your riches just as fast as it can give you wealth. Many investors are sometimes blind to the downside risk and focus only on the upside potential. If you are using a longer term approach to investing, it is inevitable that you experience a period of time when you lose money. What’s more important is you try to mitigate risks and protect your portfolio.

Another reason why it’s important to manage risk is that you have to have a buffer between your investments and your emotions.  Your own mind can be your worst enemy since long term investment strategies take time to show results and humans are prone to their need for instant gratification. Irrational thoughts and illogical decisions arise when the mind is strained with stress.

a street sign with wrong direction written on it

Not Diversifying

Concentrating all your money in one kind of asset is never a good strategy. If the particular sector or industry you betted on perform well, you can reap great benefits, of course.  However, if you take a longer term view, concentrating all your money in one asset will not work well for long.

Rather than putting all your eggs in one basket, try to diversify your holdings across a few different assets that have different correlations. The main goal of diversification is to insulate your portfolio should the market go south.

Being Unaware of Your Investments

You should always know what you’re getting into. You should understand how a company and its stock work. This can benefit you in two ways.

First, you’d be able to know what to expect from the stock or the fund. If you are fond of technology companies, you will know how they will probably perform in the stock market.

Second, you may be able to talk about your portfolio with great confidence.  Having confidence when talking about your investments will not only make you more aware. It will also show that you are confident of your plan of attack.

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