The world of investing can be very intimidating and it puts many people off. However, it is a great way to generate wealth if you know how to do it.
Those who invest have dreams of becoming the next Warren Buffet but it is easier said than done. It requires hours of research per month to ensure your stocks are making you money. Furthermore, there are many different types of stocks to invest in.
Nevertheless, once you have the right strategy then you can make a decent secondary income. That is why many people invest. The other reason is that it promises better returns than a savings account. That is why people invest as interest rates are low for savers accounts.
For the best advice for investing in stocks, you should always speak to professionals and financial advisors. However, if you want to do it alone, you will soon find how hard it is. Plus, you will make many investing mistakes along the way but as the famous saying goes, we only learn from our investing mistakes.
Common Investing Mistakes You Should Avoid
Let’s look at the most common investing mistakes to ensure you lose little money and win a lot.
Don’t Avoid Building an Emergency Fund
One of the first things an investor should do before they start to invest is to ensure they have a rainy day/ emergency fund. We all need a fund just in case of any emergencies that can be expensive. That could be your boiler breaking or your car needing a new part. Some people will aim for around 3-6 months’ worth of their salary to be on the safe side. Other people will aim to save more. Once you have this, you can start to invest your spare cash.
One of the things you must do is pick a good savings account. Ideally, the one with the best interest rates but an account where you can receive your money when required. The easier it is to access your money, the better.
Although you can choose fixed-term savings accounts which offer the highest levels of interest, it may not be ideal as you have to leave your money for a set period. However, if you have an easy-access account, you will instantly be able to access this money.
Don’t Forget About Inflation
Another common mistake with investors is that they forget about inflation. Although their returns may be returning an amount of money, the prices of general goods and bills can increase.
Let’s say an investor has £100 and in the year inflation increases 10%, this means you will require £110 which means the item is less than a year ago. This works the same with your investments. If inflation increases by 10% and your investment only increases by 5%, you have made a loss if you decide to cash out on your investment.
Don’t Forget To Set Financial Goals
Another common mistake with investors is that they don’t have any financial goals; however, we should all have some form of goals to achieve. Some people may invest because they wish to pay off their mortgage earlier or put down a house deposit. Other people may invest because they want to retire early or have a passive income on top of their wages.
The reason why you need financial goals before you invest is because it helps the investment choices that you make. It will help you decide on the length of time you need to invest. It will also help you choose the type of investment you need to make. Some investments are riskier than others meaning the reward can be higher but you can also lose a lot of money. Nonetheless, there are some much safer investments.
Having a financial goal will give you something to aim for and is a good way to see if your investments are on track.
Ensure You Use an ISA Allowance
Another common mistake with investors is that they don’t use an ISA allowance. It is something that can help retain more for your investment.
The positive of an Individual Savings Account is that it will hold your investments with a tax-free wrapper. It allows you to gain more profits, dividends and interest tax-free. Most ISAs will allow you to invest £20,000 tax-free each year. If you want to build wealth, consider opening a stocks and shares ISA for tax-free gains.
Don’t Forget Investment Fees
Another common thing that beginner investors make is that they forget about investment fees. It doesn’t matter what you use to invest. Whether it is a financial advisor, a robo-advisory app on a stock exchange platform, you must pay some fees.
All of these fees can vary but if you are using an app like Trading 212, small investments require very little fees so this will be good if you intend to invest small amounts. However, as soon as you start investing more money, apps like Trading 212 will take more money from you.
Remembering your investment fees is very important simply because this can affect your overall returns. You may think you have cashed out with a profit. You may have spent more on investment fees.
Don’t Forget To Diversify Your Portfolio
One of the biggest investing mistakes an investor can make is that they don’t diversify their portfolio. As far as cliche sayings go, don’t put all of your eggs in one basket is one that stands out to investors who have the experience. Being dependent on the return of one investment may actually not be beneficial to your overall returns, especially if you are investing a lot of money.
No matter how much due diligence you complete for a stock investment, there is still a chance you can lose money. That is why it is essential to spread out your investments. Investing in different bonds, shares and cash will reduce your losses.
If you are considering investing in several different stocks this is good. Another good tip is to make sure you invest in different sectors. For example, there are people who only invest in technology-based stocks because they can return the most money. However, tech can have a bad day, week, month or year. It can lead you to wait longer for your returns. Consider investing in real-estate stocks, medical stocks, tech stocks and crypto currency to diversify your portfolio and make your investment much safer.
Do Your Research
Another big mistake investors make is that they don’t do their research. Research is essential when investing and you must understand what the investment is and whether it will make a return. Investing in stocks is always a good idea but only if you have completed the right level of research.
Keeping up with the news is always good in case there is any news on the big companies that you have invested in. Furthermore, you need to keep up with industry news to keep ahead and make sure you are making the right moves.
There are many videos online that teach you about the different websites you can use to research different stocks. These websites will help you decide whether that stock will be a good investment to ensure you will make a good return.
Research takes time and if you are not willing to do the right level of research then it is pointless investing. The only way you will make money is by researching. If you don’t complete your research then you’re essentially betting on a stock that could lose your money.
Don’t Follow FADs
If you want to gain long-term wealth, following fads is not the correct method for investing. FADs can offer massive quick gains but the issue is that they are extremely volatile and therefore, you could lose a lot of money.
GameStop, is one of the more recent investment fads in recent years In fact, they even made a film on it. There have been many other stock investments like this including crypto investments. If you wish to generate long-term wealth, following these types of investments because someone tweeted on Twitter that it is going to boom will likely lose your money.
Going back to researching your investments, it is important you research before you invest, especially with fads. Find out why everybody is talking about a stock and see if you can find a reason why people think it will take off. Following fads won’t build long-term wealth, only short-term so make sure you don’t invest in these stocks.
Don’t Review Your Investments Too Little or Too Much
It is important you review your investments to ensure they are heading in the right direction. Depending on your financial goals, you should consider checking them at least two times a year if you’re aiming for long-term wealth in the next five years.
There is another mistake with investors where they will check in on their stocks too much. It can develop a misconception of how your stocks are performing. For example, some stocks can be very volatile and their valuation can fluctuate throughout the day and week. If you are aiming for long-term growth, understand that checking your investments every week won’t benefit your mindset on the performance of these investments.
Quarterly reviews of each earnings report for each stock investment are a great way to monitor the performance of your investments. You can see how the company is performing and see if it aligns with your future goals.
Not Learning from Your Mistakes
There are many mistakes we can make when investing and that is all part of the fun. However, it is important to make a note of these investing mistakes. Understand why you made the mistake so you can avoid it in the future, especially if it made you lose money.
There will be times when you make the wrong decision about an investment and that is ok. Additionally, there will be times when you make the right decisions. Ideally, you want to make more good decisions than bad but learning from your mistakes is essential when investing.
Reviewing your investing mistakes is very important because you must understand why you lost that money. Yes, this will take more time in the week when researching however it will benefit your long-term goals.
Don’t get annoyed at your mistakes and allow them to distract you from your long-term goals. Create a spreadsheet to log your investors. Make a note of how much you started with at the start of the money and if you are buying and selling stocks through the month, make sure you log each week. Make a note of your initial investment and note the result of your investment. That will keep you informed about how much money you are making and whether you are on track to achieving your financial goals.
Final Opinions: The Next Step
Investing requires a lot of time if you wish to make money. If you don’t commit time to your investments then you will likely miss out on your financial goals. Additionally, you must ensure you diversify your portfolio to reduce loss on your investment.
All of this takes time at the end of the day and you need to make investing mistakes to help with the progress going forward. Another cliche saying that works great for investing is “Sometimes you have to take one step back to take two going forward”.
Another good tip for investing is to cut your losses if you think you got it wrong. Some people make the mistake of committing too much money to one investment and it doesn’t quite work out. If that is the case for you, you need to understand when to cut your losses so you can use that money to help with your future gains. We all make mistakes including Warren Buffet so don’t get tied up on one stock investment if it went wrong.
Now that you are aware of the most common investing mistakes, you know what to do to avoid them. The primary tip is to research but understand what you are looking for. Don’t just invest in something because other people have told you to.
My name is Amy Jones and I am a freelance writer from Manchester, UK. I graduated with a journalism degree, and since then have been writing for a number of business and investing publications. After becoming a victim of a revolut scam recently, I am determined to educate others about the importance of educated investing.
