5 Huge Mistakes Investors Make

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3 years ago

Cockyness

The first huge mistake investors make, especially beginners, is that they are too cocky when they start investing. They put a lot of research into their asset purchases. You can’t break down investing into 5 or 10 simple steps. You need to do lots and lots of research, and you can’t rely on a single video, article, or any other resource. Reckless investing can result in two scenarios. The first scenario is that your investment fails, you lose your principal, you lose faith in investing, and you stop investing altogether. The second scenario is that your speculation pays off, you make money, and you invest even more in the same manner and you lose more. Instead, if you’ve made a profit from a speculative investment treat it as a lucky break. If you lost money, treat it as a lesson, reflect on what you did wrong and learn from your mistake. If it was an investment early on in your life, the amount you invested is most probably insignificant, in the long term, and although it might seem like a huge setback at the moment, you can surely recover in the future if you put the right amount of research into your investment.

Investing in Assets they Don't Understand

The second mistake is investing in assets you don’t understand. If you buy a stock, for example, you don’t just buy random rumbers on a screen, or ratios with no real value. When you purchase a stock, you purchase part of a company, and in order to correctly evaluate which company to purchase, you need to be able to understand the company, as well as the products and services it offers to consumers. Cryptocurrencies are even trickier than companies, however, there is tons of material online for you to research cryptocurrencies in general, as well as the specific assets you want to invest in. 

Succumbing to Peer Pressure

The third mistake new investors make is succumbing to peer pressure. When formulating your investment strategy and executing transactions you need to base them in your own research and ignore what everyone else is doing. This includes ignoring your friend that bought the next hot stock or the next big cryptocurrency, ignoring what you read in the media about which asset’s price will go up or down, and ignore what the market is doing. Fear of missing out naturally kicks in when you hear lots of people buying an asset, or if you see their returns on that asset. Nonetheless, stay true to your course, and don’t try to duplicate what others are doing, or what others have done. After all, no one cares more about your money than you, thus do your research and trust your instincts. If you can’t do the research yourself, you can always talk to a financial advisor, or buy into an ETF.

Underinvesting

The fourth sin investors commit is underinvesting. There are various reasons that prevent people from investing as much as they should. The most common reason is lack of funds due to lack of income or lack of proper budget. You can counter the lack of incomes buy investing in yourself, getting a better job, a side hassle, or getting a promotion at your current job. The lack of a proper budget can also be fixed, by creating a very strict allocation for each paycheck you receive and sticking to it. If you want to learn more about budgeting your money, check out this video.

Not Investing at All

Finally, the fifth and largest mistake is not investing at all. This might be due to lack of funds, getting disheartened by previous failures, and trying to time the market. The lack of funds you can fix. If you made an investing mistake previously in your life, you can treat it as a lesson and learn from your past experience. Timing the market also doesn’t make any sense. If you’re a beginner investor you can’t expect to do what others, more experienced, and with much more resources than those currently at your disposal, can’t do. Instead focus on Dollar-Cost averaging your investments, i.e. Putting money on the side and investing at regular intervals over a certain period. By doing so, you hedge against market volatility, that is the fluctuation of asset prices, and you focus on determining the value of the asset you are investing in. Also, if you’re still not comfortable with investing your money, you can use virtual brokers and try out different strategies.

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