Investing is a great and calculative approach towards generating more income. However, it is important to not let the hunger for receiving high returns or emotions drive your investing decisions. Sadly, the above-mentioned has led to the fall of many promising investors, that is why in this article I have decided to share a few common investment mistakes to avoid and I hope it will serve as a guide for new investors and existing investors as well. The good thing is, some of these common investment mistakes can be avoided with awareness and careful investment planning.
Table of Contents
Common Investment Mistakes To Avoid
Failure to diversify income
Diversifying investments has proven to be a great way of reducing financial risk and losses. Still, many investors prefer to invest in one asset, placing all expectations there, but what happens if it fails or generates low returns? Just one event can damage an entire investment portfolio. Investment diversification into several asset classes and sectors offers stability such that if an investment underperforms the entire portfolio won’t be deeply impacted.
Investing in financial instruments that one is ignorant of
This is one of the common investment mistakes that most investors make, especially beginners. Investing in securities that one does not understand could lead to subsequent money loss as you will not be aware of the risk involved with it and what to do when the market changes or how it is affected by market changes(for instance stocks, Real estate etc).
High Expectations of Return
Many investors are known to express disappointment when an investment fails or generates lower returns and in most cases, wish they didn’t invest at all. This mistake can be avoided if the past performance of the stock that the investor is interested in is reviewed and the historical trends regarding the stock and the company issuing the stock financial performance are considered before making an investment.
Obsession with a particular company
It is easy to admire a company for its sterling financial performance so much that you invest in the financial instruments it issues. But the mistake some investors make is creating an illusion that the company will always be successful so that they seldom notice when the company might be going bankrupt. It is important to always look out for when the fundamental reasons that prompted you to invest in the company offer change. If it does, you should consider selling such investments.
Attempting to time the market
This is a common investment mistake that is disastrous because it can kill the rate of returns.
Please note that successfully timing the market for when it is favorable is difficult, okay what happens when you see an instability? It could make you change an investment that could do better long term. Rather, you should focus on choosing the right asset allocation and investments with a good risk tolerance as this is what affects a portfolio’s return not timing.
Living on emotions
Patience is a virtue, honestly, you would not like the results of your investments if impatience is applied to it. You can avoid this mistake by keeping your expectations for the investment realistic and making portfolio growth your goal for investing and not getting high returns.
High commission fees
Paying too many and expensive transaction fees can negatively impact investment. When going for an investment or choosing an investment adviser you should consider going for one with low commission rates and short-term taxes.
Following the crowd
This is a popular investment mistake that happens to every category of investor and it involves making an investment decision based on information gotten from the media. This is the wrong approach for investing because by the time the information regarding an investment(stock) is publicized, the stock might have reached its peak and it is overvalued. Investing at this stage would be riskier.
Failure to review investments regularly
Not reviewing investments periodically, especially in a portfolio that has been diversified can reduce expected returns as an investment is subject to changes, also the portfolio you have tried so hard to balance might end up looking different.
Reviewing investments will you make adjustments to your portfolio where necessary and also strengthen the results you intended for it.
Final thoughts on Common Investment Mistakes To Avoid
The list of common investment mistakes to avoid is indeed a long one. Investment mistakes to avoid include chasing yield, not having a clear investment plan, and engaging in the opposite of the objective of investing-buying low and selling high amongst others. Most of the investment mistakes can be avoided by going for a long-term investment and clearly stating what your goals for investing are. Lastly, you should know that making mistakes is part of the investing process but to become a good investor you would have to know how to avoid them and endeavor to not make a mistake twice.