If you are a first-time investor, congratulations and welcome! Investing is not only exciting but also an empowering activity that sets you up for future success. Learn all you can about the dos and don’ts of investing so you’ll have the best experience possible.
Here are 5 common investment mistakes you need to avoid so you can enjoy financial success.
Patience is one of the most important aspects of investing, and impatience is usually a recipe for disaster.
Investing is a long-term game. You are unlikely to see the benefits overnight or even within a few years. Instead, a few decades may pass before you can fully reap the rewards.
Another reason patience is important is because as an investor, you cannot let your anxiety or emotions rule your investment decisions.
Impatience can lead to detrimental behaviors like:
- Over-checking account balances
- Focusing too much on short-term volatility
- Buying or selling at the wrong time
- Abandoning your long-term investment plan
These behaviors damage the returns on your investments, which is why patience and investing go hand in hand.
2. Not Understanding Your Investment
As an investor, you don’t want to invest in companies you don’t understand.
A way to avoid this issue altogether is to build a diversified portfolio made up of either ETFs or mutual funds or a combination of both.
ETFs and Mutual Funds vs. Individual Stocks
Exchange-traded funds (ETFs) and mutual funds are investment strategies with built-in diversification that reduces the risk of investment mistakes.
With individual stocks, you are directly buying a stock you think will do well. There is typically a higher risk associated with individual stocks.
This isn’t to say you cannot own any individual stocks, but they should be a smaller portion of your overall portfolio.
3. Trying to Play the Market
If you try to play the game by timing the market, you risk killing your returns.
Market timing is when you try to move your investment money in or out of the market on the basis of predicting when the market will go up or down.
Successfully timing the investment market is extremely difficult. Even seasoned, institutional investors often do not succeed at timing the market.
Institutional investors have many tools at their disposal to time the market efficiently for their clients. These decisions are guided by a variety of technical, fundamental, quantitative, and economic data.
Without these tools at your disposal, you should take caution with timing the market.
4. Failing to Diversify Your Portfolio
The principle of diversification is one of the wisest and most tried-and-true methods for investing successfully and avoiding investment mistakes.
Professional investors have the ability to generate returns by investing in concentrated positions, but everyday investors should not risk this.
Instead, build a portfolio of diversified ETFs or mutual funds, and do not allocate more than 5 to 10% of your portfolio to any one investment.
5. Trying to Do It All on Your Own
Trying to do everything on your own can be a daunting task. The investment professional’s role is to use their specialized knowledge, skills and tools to better assist the clients in reaching their financial goals.
Contact Royal Harbor Partners to work with experienced investment professionals and take the next step in your investment adventure.
You should always consult a financial, tax, or legal professional familiar with your unique circumstances before making any financial decisions. This material is intended for educational purposes only. Nothing in this material constitutes a solicitation for the sale or purchase of any securities. Any mentioned rates of return are historical or hypothetical in nature and are not a guarantee of future returns. Past performance does not guarantee future performance. Future returns may be lower or higher. Investments involve risk. Investment values will fluctuate with market conditions, and security positions, when sold, may be worth less or more than their original cost.