Expensive investment mistakes you must avoid
SEE ALSO :You can’t make it alone, says authorIf it looks too good to be true, it probably is. Many new investors are sucked into enticing “deals” which promise to make them rich and without conducting proper due diligence, they sign over their hard-earned cash. Before investing in a company, review their financial statements, its management and ownership, and how it’s competitors and the general industry is doing. Make your investment only when you’re satisfied with your due diligence and have made peace with the potential risks. 6. Investing in last year’s winners Many people make the mistake of expecting last year’s top performing stocks to be successful every year. However, too many factors can affect the performance of stocks and bonds including the economic health, politics and consumer habits. “The investor of today doesn’t profit from yesterday’s growth,” Warren Buffet says. There are bad and good years for every company or industry. Instead, invest in companies with steady performance and a consistent, solid track record. During a bad year, a great company might still make losses, but at significantly lower levels than other companies. That shows they have a strong risk management system and are still a great investment. 7. Thinking short-term “Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas,” says American economist and Nobel laureate, Paul Samuelson. Investing is a long-term plan and if you’re looking for short-term results, you might be sorely disappointed. Just like planting a seed, you must give your investments time to grow before they’re ready for harvest. This is especially important when you’re investing for long-term goals such as retirement and funding children’s education. Too much investment turnover, unless you’re an institutional investor with the benefit of low commission rates, will also significantly eat into your profits. A slow, steady, and disciplined approach will take you further than being impatient with your investments. As Warren Buffet says, “If you aren’t thinking of owning a stock for 10 years, don’t even think about owning it for 10 minutes.” 8. Learning from the wrong sources Yes, knowledge is power- but you must be careful where you get your knowledge from. Relying solely on recommendations from your buddies simply won’t cut it. There’s no shortage of self-proclaimed experts who peddle their opinions as educated, well-researched, and irrefutable knowledge. An often overlooked key to investing well is to identify and isolate credible sources of guidance. Bear in mind that just because someone is featured in the media or makes a lot of noise on social media doesn’t mean they know what they’re talking about. Look for a source of guidance with sound and consistently reliable advice. Combine their wisdom with your own due diligence and intuition to make great investment decisions. 9. Timing the market Some investors wait for an “opportune time” to buy and sell stocks. While this looks like a great idea on paper, successfully timing the market is extremely difficult- even for institutional investors. For instance, if you wait till a particular stock performs better, it will probably have reached its peak by the time you make a move. Peter Lynch says, “There’s never been a market timer on it (Forbes Rich list). If it were truly possible, to predict corrections, you’d think somebody would have made billions by doing it.” Instead of attempting to time the market, select high quality investments which align with your long-term goals and be prepared to hold them for a while- even when the markets are volatile. 10. Failure to harvest winnings Back to the farming analogy, not reaping your crops when the time is right can lead to losses. Every investment has a life cycle and as it nears the end of its life cycle, keeping it longer will not make more money and can even result into losses. When an investment makes a substantial gain, it’s usually best to harvest. This is known as the cash cow stage and employing a harvest strategy at this point will give you maximum returns.
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