You’re going to make mistakes when you get into investing. Everyone does, from Warren Buffett to George Soros. Being a good investor means you learn from your mistakes and try to mitigate your losses.
In order to help you avoid the most common pitfalls, here’s a quick list of some basic mistakes that new investors make. When you notice yourself about to make one, you can step back, regroup and get back on track toward becoming the brilliant, patient and cool-headed investor you’re meant to be.
There are no guarantees in the market. Except one: Not investing at all will not provide for a comfortable retirement.
Remember, time in the market is much more important than timing the market. You don’t need to make a huge decision regarding your life-savings – buy one share in a company that you love. After that, you can start thinking about the bigger picture and start diversifying.
Investing for the short term
The caveat to part one is don’t invest with money you don’t have.
Buying one share to get you off the mark is all well and good, but don’t go investing huge sums of money that you may need in the next year. Far too often, novice investors throw all their savings into stocks thinking they can sell them off whenever they need the money back.
This isn’t a bank account. If you need the money in the middle of a downturn, you may have sell for a loss.
Playing it safe
If you’re young, don’t go investing solely in low risk, low yield stocks. You’ve got years to weather the dips in the market and reap the huge rewards.
Older investors don’t have that luxury. You know the expression “time is money?” Nowhere is that more true than in the stock market. Use your time to your advantage and invest in companies with the potential for long term growth.
Try to invest in upcoming megatrends, like green energy, and find the leaders in the industry to buy into.
Playing it risky
Conversely, don’t go throwing all your money into risky companies – particularly overhyped stocks without solid business models or sound leadership.
Spread the risk across a few companies and sectors to cover yourself in the event of a downturn and have a few bedrock shares from larger companies to keep your portfolio balanced.
Following the crowd
If following the crowd worked, we’d all be millionaires.
You’re going to go through periods where every fiber of your being is telling you to sell a stock you still believe in because of some temporary slump. A bad earnings report here and there isn’t going to be the downfall of a great company.
Stock prices go up and down – stick to your guns and over time you’ll reap the rewards of a long term investment strategy. Keep changing your mind and your returns will be eaten away at by trading fees.
To bounce back from any mistakes made when investing, remember:
- Everyone makes mistakes throughout their investing life.
- Learn from your mistakes or you’ll never become a great investor.
- Doing nothing is the biggest mistake you can make.