Financial Advisors: What Not To Do When Investing
Updated: May 15, 2021
If you are someone who is interested in investing money, then it's very important for you to be shrewd and smart about it. Apart from being smart, you also have to be a little fearless and don't get scared by the volatility of the stock market especially in the current testing times.
It is a very clearly known fact that not everyone makes money out of their investments, most of the investors lose money on their investments. So that got us wondering: what are people doing wrong while investing their money?. To understand this in a better way, we decided to study various online financial advising resources and financial advisors' opinions on how normal people do investments and what common money mistakes, people usually make.
Here are some of the answers we got while studying and researching the question: What are the common mistakes normal investors make?
Financial Advisors On Investment Mistakes
Not Getting Started
One of the most common mistakes people make is not starting. Most of the people usually wait for the so-called perfect time before start investing. People usually ignore the fact that over the long term it's time in the market that matters, not timing the market.
People also make a very common mistake of believing that stock investment is "Get Rich Quick Scheme" and buy a large sum in one stock in order to get rich quickly. It's very important to understand that the magic of compound interest takes time and there is no "Get Rich Quick Scheme".
Note: It's important to get started rather than getting it right on the first go.
Waiting Too Long
According to many financial investors, another common mistake people make especially young investors is, waiting to save and then invest because they believe that they have low income and high expenses and have plenty of time to save.
People need to understand that with the increase in their incomes, their expenses will also increase as they get married, have children, etc. It's important to start early because the most valuable money you will every save is the first money you save.
Note: Start investing early. There are apps like Acorns that can get you started without putting any pressure on your bank account.
One of the biggest mistakes most of the investors make is following the crowd. They don't do their own research, evaluate their investment goals, and start investing in the hype. People who follow the crowd always get in late and usually have poorly timed entry which makes them prone to vulnerabilities and losses.
Note: Always do your own research rather than following the crowd and think about how the investment really fits into your long-term financial plan.
Waiting For The Stock Market To Be Safe
It is very difficult to predict the nature of the stock market, there are a lot of people in the world who works in financial firms and their job is to predict when the market is safe and when it's not safe. They are often wrong.
As a new investor, you usually don't have the resources, ability, and time to understand when the market is safe therefore don't wait until you think the market is safe. As an investor, you should not miss out on upswings in the market.
Note: You can never confidently determine when the market is safe and when it's not safe.
Investing In Individual Stocks
Most of the novice investors don't have a well-detailed knowledge of the financial markets and rarely do their own detailed research about the stocks before purchasing. They usually rely upon news or information from friends to make buying or selling decisions which often results in low performance or failure.
It's important to diversify your portfolio of stocks rather than investing in individual stocks. Funds like ETFs or mutual funds allows new investors to own a well-diversified portfolio of stocks. ETFs are particularly useful as it allows investors to buy shares at a low initial investment.
Note: There is a good old saying " Don't Put All Your Eggs In One Basket", the same saying applies to the stock market investment also.
Here we just discussed general tips and explained options/solutions you as an investor may have. The above-mentioned tips are based on our study of the various financial advising resources, use case studies and financial advisors' opinions. This post is not intended to be a personal recommendation on how to invest, it's just an informational piece of study based on our online research and can vary depending on your situation.
We hope that this post has provided you with some interesting and useful information about the mistakes people usually make as an investor and how these kinds of mistakes can be avoided.
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