Mistakes are common when investing, nearly every investor make mistakes. However, some can be easily avoided if you can recognize them. To minimize losses as much as possible, it’s important to embrace vicarious learning i.e learning from the mistakes of other investors and avoiding those mistakes as much as possible. To maximise your gains and minimize your losses here are 5(five) common investing mistakes you should learn from and avoid.
Unclear/No Investment Plan
What are your financial goals? What do you need to invest in and how much? It’s important to know why you’re investing. Having an investment plan will help align your personal finance goals with your investment strategy. Your goals could be retirement, asset accumulation, passive income etc. Whatever your goal is develop a plan of action. It’s also useful in assessing your risk tolerance and evaluating your portfolio performance over time.
No Diversification
When properly implemented diversification is a valuable risk management tool. Diversification help limit your exposure to one asset class and spreads your risk across different asset classes or sectors. By putting all your money in one asset class, you put yourself at extreme risk. When you invest, you should be looking at different assets and in different sectors that can help your portfolio stay balanced.
Emotional decision making
This is a major pitfall for many. In the short term, the markets behave irrationally, constantly moving up and down thus instilling fear and greed into the minds of investors. Don’t get caught up in the upswings and downswings by letting fear and greed control your decisions. Put your emotions in check by exercising patience and having guidelines that will help you navigate uncertainties.
Timing the markets
Getting in and out of an investment at the right time is extremely risky and difficult unless you have proprietary information. Real-time analytics and patterns from historical data can give signals there is no concrete guarantee the market would behave accordingly. Even top institutional investors often fail to do and replicate it successfully
Improper research
Only invest in assets you understand. Your investment decision should be based on your understanding of the facts, not people’s opinions. Do not follow the herd when making decisions; make sure to do your research and verify even after suggestions are given to you. No matter how exciting the investment is, always do your research before investing.
Conclusion
Mistakes are part of the investing process though, they can prove costly but they also present a valuable learning experience. Developing an action plan, continuous learning and exercising patience will help you avoid these common investment mistakes and move you closer to your investment goals.
