When we work our butts off to earn money, most of us choose to save or spend it. Some people, however, choose to invest.
To investing pros, the entire process is a no-brainer. But to the rest of us newbs, the practice is unfamiliarly terrifying. Being a beginner at something is never comforting, especially when that something involves your beloved money.
But breathe easy mates. We’ve got your back.
If you’re curious about investing or just getting into it, check out six common investing mistakes and how to avoid them.
Having no plan
Like with any big move or decision, it’s always best to have a plan. A smart investment plan covers everything from setting realistic goals to risk assessment to asset allocation.
Before putting your money anywhere, get to know these terms and write out what your plan will be as you navigate the market. The more prepared you are for the highs and lows to come, the more profit you’re likely to see in the long run.
Not allocating appropriately within your time frame
You can invest over long periods of time or short ones, depending on your goals. The longer your time frame, or time horizon, the more aggressive you can be on your investments. However, if you’re looking to buy a new house or pay for uni next year, then you can’t afford to be too moderate with your investments, either.
Again, it’s best to have a well thought-out plan that takes into consideration your time frame when allocating assets. Lining up your objectives and understanding your time horizon will allow for optimal asset allocation.
Investing in your employer
Unless your employer is a massive and ever-growing company like Coca-Cola or Disney, you may not want to put your money into your company’s stocks just yet.
People “blindly” investing in their employers or companies they’ve had a connection with happens more often than you think. The issue is it often leads to poor investing practices, like concentrating money into just one asset, and to employment risks like less pay or retirement savings.
Trading too much
The idea of buying and selling stocks quickly to beat the market may sound like a moneymaker, but realistically, you can’t beat the market.
While some people will do better than others when constantly trading stocks, those people will still have to pay fees and taxes and on their positive returns. By the time these fees are paid off, their profits will have dwindled and over time.
You’re better off leaving your money where it is and riding out the lows. Investment is a long term game, so don’t let the media scare you into selling at the first hint of trouble.
Following the herd
There’s a sense of comfort in, “if they’re all doing it, I should do it too.” But c’mon…what has your dad always said about following what others are doing? If they jump off a bridge, will you do it, too?
When these market bubbles burst, you’ll find yourself screwed because you put all your eggs in one basket thinking it was the most profitable basket of all. Basically, listen to your dad. Don’t just follow the herd and make sure you diversify to give yourself the best chances at reeling in wins that outweigh losses.
Missing the bigger picture
Sometimes, it’s common sense that’ll get you further than hardcore calculations. What I mean is, it pays to look at what’s going on in the world. Look at which markets are growing from the outside in: Are kids playing with certain toys these days that companies are capitalizing on? Is a popular restaurant chain going international? Are there certain brands you see every time you step outside?
Common sense says investing in these brands or companies could make you a nice profit.