Are you thinking about investing? Well, if you are new to this, it’s very easy to make costly mistakes. If you have an idea of the potential mistakes, it’s not a big effort to avoid them. Here are some of the top investing mistakes you need to watch out for.
Taking A Stock Tip
Take an instance where an acquaintance gives you a stock tip. Such a person would probably continue to say that they know someone who has inside information about the stock tip. Well, as enticing as this might be, you need to stay away from stock tips.
Yes, the story behind the stock tip might be very convincing but it might be a tall order. Aside from the short discussion, you might not have an idea of how the company makes money or if it is profitable. If you are planning to invest in an individual company, you need to know the inner workings. You need to do your research without getting any insider information.
Air conditioning entrepreneur Karl Ammoun stresses that you need to analyse financial decisions and tips with extreme scrutiny. “Money isn’t something to be easily tossed around. While your friends can be friends, you should be very wary when it comes to finances.”
People with hot stock tips are never interested in your success. Even worse, they might be part of a pump and dump scheme trying to convince investors to buy many shares of penny stock. That’s why you need to be careful about these investments. If they are brokers, they are simply looking for commissions. On the other hand, professional TV analysts are simply looking to boost their holdings’ prices.
You need to be very careful about buying anything from a tip. The source doesn’t matter. Choosing the right stock is tough even for professionals. Most investors actually prefer low-cost index funds that are broadly diversified.
Waiting Until The Market Is Safe
Take an instance where the market just dropped by at least 20% and everyone you know is scared. You might be willing to dump your stocks then wait for the market to go up again. Any action that you take during this period will separate the beginners from the professionals.
As a beginner you might opt to sell your stocks then wait to make another investment when the market is stable. It will cost you huge returns in the long run. A good example is S&P which bottomed out during the financial crisis in 2009. However, it moved up very quickly and after 2 years it went up to 95%.
For the team at Cheaper Trees, their services can often go up and down depending on the season. “The market is extremely volatile, meaning that there isn’t exactly a safe time to invest. There certainly are safer times, but you just simply don’t know until you pull the trigger.”
With this scenario early and consistent investors compounded their gains. At least 8 years after bottoming out in 2009, the company increased by 250%. Missing out on such a huge increase will not show up as a loss in any account statement. However, it’s a huge beginner’s mistake. Waiting to get to the safe side, you will miss out on so much more.
Legendary investors often get scared when the market is very high especially with valuations. However, they are rarely worried when the stocks go down. Actually, when stocks go below 20% or 50%, it’s mouth-watering.
Investing Money You Will Need Soon
Take a scenario where you set aside some money to buy a car next year. However, you are making barely any interest with that cash in your account. You can use the cash to buy stock. Well, you should know that such an investment is speculative and market timing. Yes, the stock might go up but it will most likely go down.
Recovery expert Janine Castle believes that it’s critical to keep money for a rainy day and to not just spend on every golden opportunity that presents itself. “There’s always something just around the corner in terms of needing to spend money on that. It’s all about the needs, and not the wants. You also need patience when it comes to finances, because sometimes investments need room to grow. Just don’t spend everything all at once.”
If you are saving some money for something to buy in a year or two, don’t use the cash to buy stock. However, you can use it for a CD to get the best flexibility. Even better, you can opt for a high-yield savings account. The right investment will take time. You should leave your money in the market for at least 3 to 5 years. If you haven’t made any of these mistakes, then you’re on the way to opening your first brokerage account.