The world of investing can be both exciting and lucrative for those who play their cards right. In many ways, a gamble and a game of intuition, investing in the process of using your money to make more money. It’s a pursuit as old as currency itself, but investing in the modern world can be quite complicated. Be sure to avoid these five common errors when you get into the world of investing.
Lack of Planning
As the saying goes, when you fail to plan–you plan to fail. Going into any investment pursuit without a clear goal in mind is a recipe for disaster because if you don’t know where you’re going, you’ll never know when you get there.
Set yourself a personal or financial goal when you begin any investing enterprise. When you reach your goal, evaluate the current situation, think about what you could have done better, and plan even more extensively for the next time around.
All Eggs in One Basket
Nothing is more devastating to investors than the enormous losses that come from putting too much faith in one area of the market. If the majority of your investments are in one stock or one sector, it’s time to start diversifying.
When you put all of your eggs in one basket, you open yourself to two possibilities–brilliant gains or catastrophic failure. Spread your investments out over different market sectors so that if one happens to go down, it will be buoyed by the others. Diversification is one of the best things you can do for your portfolio.
Getting Into the Wrong Market
Investors commonly make the mistake of jumping into a market without doing enough research. For example, foreign exchange trading has become popular in recent years due to its apparent simplicity and potential for significant returns.
Many beginning investors jumped into this field without understanding the risks, and they tended to lose big as a result. Even veteran stock market investors can get lost in this field because they assume it will work like the markets they’re accustomed to. Every market works differently, so do your homework before making new investments.
Believing the Hype
There is a lot of misinformation going around regarding the world of investment and a lot of mythology. Certain investment areas are being touted as “risk-free” by unscrupulous vendors looking to sell at home investing software to amateurs. Remember this from the start: no investment is risk-free.
Without the possibility of loss, there can be no possibility of gain. The potential benefits and injuries are often equal to each other, but not always. Junk bonds and every different type of investment carries a risk. Always be realistic about risks and benefits when you go into an investment, and remember that you can’t account for every possibility.
Unrealistic Time Frames
Give yourself a time frame for achieving your investment goals, and be realistic about it. Many investors get frustrated because they try to go for too much in too little time.
Investments take time to bloom and bear fruit, just like an apple tree in the orchard, so be patient. Give yourself a chance to get where you’re going, and don’t rush. Haste makes waste, and in the investing world, that means a waste of money.