Common Mistakes First Time Investors Make

Posted on Apr 8 2016 - 3:01pm by Editorial Staff

Investor

When you first start investing into the stock market it can be very intimidating and hard to know that you are making the right moves. Many new investors find themselves making the wrong decisions after hoping to jump in and make a buck or two. The hardest thing for new investors to understand is that you have to be cautious and pay attention to more than just price. There are several mistakes that new investors make, below are some of those mistakes. Make sure you avoid these so that you are successful from the start. 

No Plan and No Follow Through

First and foremost, it is important that every investor have a plan. Most new investors do not take the time to create goals and map out a plan of attack. Instead, they go into it blind without any reason for making bids or pulling out when stocks get low. Even those investors that do take the time to sit down and map out objectives prior to beginning their investment journey tend to jump when things start to look bleak. You have to stick to your plan and base decisions off of statistics, not emotions.

Making it a Guessing Game

Many new investors make the mistake of looking at the stock market as a guessing game. Instead of using the data at hand and deciphering what might be a good buy or not, investors gamble with their money. The stock market is not a speculation game. Homework needs to be done to make an informed thought provoking decision. The data is there; however, new investors either do not understand that or do not take the time to research it. There are mobile apps such as Acorns app that will help you understand the game better. Acorns is a nice application that can be used on your desktop and phone that will allow you to manage your investments from anywhere.

Underestimating Risk

New investors often do not know how to assess the amount of risk an investment will have. They also lack the emotional confidence to understand how far risk can take you. Some investors are too scared and some investors invest without enough risk. The point is, there is a balance and investors need to understand that balance. Most new investors do not understand this balance and make decisions without taking the opportunity to assess the damage the right way.

Investing in What You Need

Some new investors make the gigantic mistake of investing in stock with money that they need and not with money that they can stand to lose. Most articles, forums, conferences, and people will tell you that you should not start investing into the stock market until you can do so with money that you are willing to part with. This means that you have a nice amount of money saved up for emergencies and retirement. You also have money dedicated to investing into the stock market, which you are willing to invest with. That money allows you to make the best decisions possible, while money that you need causes you to make emotional decisions. Please do not invest into the stock market with money that you cannot lose and need.

Long-Term Vs Short Term

New investors also have a hard time understanding that investing into the stock market is a long-term process. Typically investors are looking for a 20 or more year investment. Often you will see a new investor that think they can jump into it and make some quick money. The stock market is built for long-term investments. Those who are in it for short-term gain will make bad decisions, guaranteed. Investments are about long-term profits, not short term gains.

No Diversification

The key to success in the stock market is a diversified portfolio. Investors who limit themselves will drain themselves. Those who think they can put all of their money in one big stock, one type of investment or sector are really killing themselves and hurting their chances of a nice return. The most successful investors ensure they have investments in several industries, sectors and companies. This protects you from the downfall in one or the other. If something bad happens in one, you still have the other portion of your portfolio to keep you stable.

There are many other mistakes that new investors make, but these six are some of the more common mistakes. If you can avoid these, you are well on your way to success. It is also important that you manage your portfolio.

Photo Source/Credit: stevepb, CC0 1.0

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Editorial Staff

Editorial Staff at I2Mag is a team of subject experts led by Karan Chopra.