Investment is studying the market trends carefully and yet not depending too much on past records of a particular stock that is showing up returns too good to last long. Investors make mistakes in not analyzing one’s risks properly, overdoing investment amount and showing impatience.
As a newbie investor contemplating on making the best use of your savings by making an investment through opening up a brokerage account on pouring it on stocks, it is imperative to introspect and ponder carefully before taking plunge. For like every investor you are human and this means committing mistakes is something very commonly witnessed even in pro investors. Investment comes with uncertainty and hence there is no specific formula or computerized program that can give you the right idea of whether the money you pour in will provide you with valuable returns. Often emotional behaviors on investors’ part leave them making mistakes in their investment decisions. So before you invest and trigger circumstances where you relent later, here are 5 common mistakes you should avoid as an investor.
Inability to Analyze Risks:
You might have been prudent enough in gathering a whole bunch of assets that could help you lead a comfortable life after your superannuation. But when the question of investment crops up, you might be digging a dungeon for yourself by going for extremely risky investment which may turn its back on you anytime making your strategies go haywire. And yet there are young people who love to procrastinate in spite of possessing the ability to handle risks with their advantage of age, thereby ending up taking hasty investing decisions later which may be detrimental.
Investment is a matter of patience and making rash emotional decisions can turn out to be harmful bargain on your assets. You cannot expect your investments to give you prompt gratification and returns and to reap the benefits from the investment that you thought to be a quality one in the first place, you need to be hold on to your patience till the completion of the cycle. The duration of the cycle is something you get to know only after its culmination. Being too active in your trading sessions and making investment decisions too often or more than once in one year can really cost you a fortune.
Just like over-gorging can lead to indigestion putting too much money in one basket or into your favorite stock account calls for danger. For even though the particular portfolio may appear the most promising one, it is advisable not to go about representing more than 10 per cent of your investing money in one single position. A balanced diet comprises eating the right proportions of proteins, carbohydrates, fats and the likes. Similarly, to have a balanced financial investment strategy you need to diversify your investments and not over-do anyone. If you over-commit yourself you might find yourself whipped by your daily expenses as well which you need to maintain your basic living standard.
Frequent Changing of Mutual Funds:
Mutual funds should be invested by hedging your bets and committing to remain faithful to them for the long-term. Investors tend to get swayed by the latest dwindling performance of mutual bonds and sell them while buying the funds when their performance has been relatively much superior. Consequently you tend to buy at high prices and sell at low ones and losing a considerable amount that you could have earned had you shown perseverance and patience.
Here, the issue of “chasing yield” comes handy. You might be tempted to invest in a particular account simply because it is yielding handsome returns which look much more luring when compared to others. As noted by expert financial planners if a company is utilizing up its cash in its entirety for a quarterly dividend, it may so happen that it curtails its share value in future to meet the expenses of other quarterly bills, thus leaving you to lose on your shares as well as the dividend income that you could have earned.
Being Too Optimistic:
If you are among those investors who feel too optimistic about their investment overtures and their success and have a subconscious bias considering yourself a more discreet stock picker than the herd you might be ending up overestimating your capabilities. While you might be overconfident about your stock and refuse to learn from your mistakes you should also remember your stock does not care in the least about you.
Jennifer Winget is a marketing professional. Apart from her profession she loves to write and share articles related to business, technology, health, fashion and financial services. Follow her @jennywinget01
Category: Personal Finance