Investing is a risky business. Some may think that there is nothing complicated about it, and once you become an investor, you’ll accumulate income indefinitely. Unfortunately, it’s not exactly the case. Investment resembles a card game – you never know what card might come off the deck next or what may happen to your money. Nevertheless, investing always seems very tempting as it promises high rewards to those who are bold enough to take risks and smart enough to manage them. In this article, we’ll take a look at 3 top rookie mistakes. Avoiding them will help you reduce risks and make better investment decisions
- So, the first serious investment blunder is lack of research
Any rash investment that lacks research and proper planning leads to failure. Before entrusting your money to a broker or transferring it to an investment fund or a money manager, calculate investment risks and make sure that your partners are reliable and trustworthy. The time and effort you spend on the rational investigation will return a hundredfold, increasing your chances of success. Investing in a catch-as-catch-can manner, without accounting for any risks and with no understanding of your investment whatsoever may result in huge losses and cause disappointment.
- Second mistake – lack of diversification
Taking their first steps in investing, many novice investors neglect the basics of this business. They pour all their money in just one asset or security, which, they believe, will generate high profits. For short-term investments, such a strategy may be suitable, although everything depends on the goals of the investor. In the long run, however, the best scenario would be to allocate your investment between several asset classes, thus sticking to a basic principle of diversification. Monitor the assets within your portfolio to be able to adjust it in a timely manner in case of any changes.
Use assets that offer the highest returns, such as Eurobonds, securities, real estate investment trusts, etc. Of course, such investments are fraught with greater risks due to spikes in the portfolio value, but this is how diversification works. Remember: good returns on your investment start at 3% per year. It means that your investment should outpace inflation.
- Third rookie mistake – investing without goals
Investing with no end goal is the most common mistake investors make. And not only noobie investors. Even professionals who know exactly what they are doing often suffer from poor goal setting. When an investor doesn’t have an end goal, he lacks enthusiasm and motivation and is often under psychological pressure, fearing to lose his investment. Before making any investment decision, determine your end goal and set a deadline. Having benchmarks, deadlines and profit targets will help you stay on track.
If you want to improve your financial well-being, investing opens up great profit-making opportunities. Mistakes are all part of the learning curve. To avoid committing the mistakes we listed in our article, do your research, build a well thought out, systematic plan and stick with it. Be patient, don’t let emotions influence your decision making. Create a diversified portfolio, that will provide a great return in the long run.
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