Are you determined to start investing this year? Making a fortune in the stock market is a long and slow process that requires discipline and endurance. You canât expect to have good results if youâre making common mistakes. There are plenty of sources telling you what to do. Be sure to consider what not to do, too.
For your best results, avoid these common investing errors:
- Failing to perform the necessary due diligence. Too many people treat an investment like a lottery ticket. Avoid making investments that rely on luck for success. Carefully research and compare possible investments against other investment opportunities. An investment is your best âguessâ after doing a lot of work.
- Do you possess the necessary knowledge to assess stocks, bonds, and mutual funds? The information you need is out there. Be sure to do your research before committing your money.
- Using an unreasonable timeline. A great return is a couple of percent above the market return. Thatâs not enough to get rich overnight. Make long-term plans and invest appropriately.
- Huge stock returns are possible, but virtually impossible to capture consistently. Keep a long-term focus.
- Listening to the media. Most of the talking heads on financial topics invest very conservatively. They made their money giving advice or appearing on television. If any of them could predict the market with any certainty, theyâd be among the wealthiest people in the world.
- Invest as if you didnât have access to short-term news.
- Listening to friends, family, or strangers. Every investor thinks he has a unique understanding of the stock market.
- Do you own work and reach your own conclusions. Avoid being impulsive and only use stock tips as possible companies to research.
- Holding on to losers for too long. At one time or another, every investor has said, âIt canât go any lower.â Even large companies have gone bankrupt, and the stock price fell to less than a dollar. Only stay in a falling stock if you have reason to believe the price will rebound. Avoid being too proud or stubborn to throw in the towel.
- Selling before itâs time. Just because your stock is already up by 20% doesnât mean it canât still go up higher. Many stocks have gone up 100-fold or more. How can you be sure yours wonât too? Analyze the price and determine if itâs justified. Make your decision from there.
- Failing to diversify. On one hand, you have famous investors saying things like, âDiversification is only important if you donât know what youâre doing.â On the other, you have experts claiming you canât be too diversified.
- Just remember, the more diversified you are, the less likely you are to lose a lot of money. Itâs also true that youâll be less likely to make a lot of money in the short term.
- The more diversified you are, the more your results will mimic the market.
- Investing without a plan. What are your reasons for investing? Retirement? Home purchase? College tuition? Knowing your purpose will help you determine an effective plan.
- Failing to monitor your investments. Your work isnât done once you pull the trigger and make a purchase. You might make the perfect bond or stock purchase today. That doesnât mean itâs still a great investment 12 months from now. Stay on top of your investments and continue doing your research.
The most common investing mistakes are well known, yet continue to be common. Avoid common investing errors and you can expect uncommon results. Take your investing activities seriously and spend time each week reviewing your investments. Determine your purpose for investing and make a plan. Youâll be more pleased with your results.