Many of us commit mistakes in our investments, sometimes because of the unpredictability of markets, our inexperience, or sometimes because of our emotions. To help you avoid these mistakes and earn more from your investments, you need to get to know them better. Here are the common investing mistakes you should know more about.
Mistake #1: Putting all your eggs in one basket
You’ve probably heard this axiom before. Since we don’t know what’s going to happen tomorrow, we need to put our money not just in one investment but several different types of assets. A diversified portfolio of investments can yield better returns with lower exposure to risk. Putting all your eggs in one basket puts you at risk because you can lose all your investments at once.
Mistake #2: Investing in something you don’t know
When you invest in something, make sure you completely understand how it works. Knowing how a company does business will let you make informed decisions about your investment. If you want to invest but don’t know how certain companies work, put your money in mutual funds or exchange-traded funds instead.
Mistake #3: Paying too much attention to financial shows
Financial shows know their stuff, so you should listen to their stock tips right? Not really. These shows are part of the media, which is in the business of selling news, not giving profitable stock tips. If you had great stock tips, why share it with everyone? You keep it to yourself and make your millions.
Mistake #4: Get attached to a company
Here’s a pitfall in investing: when we put money in a company and see it perform, we tend to get attached to it, and that’s bad. When time comes that you need to sell the company’s stock, our fondness might keep us from doing the right thing.
Mistake #5: Investing in stocks rather than companies
Sometimes, we’re so wrapped up in stock performance and market conditions that we fail to look at the company itself, and this could be dangerous. Since market momentum changes, you need to look at the company’s overall financial situation and potential to increase its revenue and profits.
Mistake #6: Selling low
Not being able to sell a losing stock early enough is another investing mistake you need to avoid. It may sometimes be hard to predict a losing stock, but once it happens, sell it before you lose even more money, and then move on to better prospects.
Mistake #7: Buying high
To make money in investing, you need to sell an asset at a price higher than what you bought it for. Many investors, however, do the exact opposite: they buy high. This happens because they try to run after a performing asset, hoping that it would keep up its performance. But more often than not, it doesn’t. To avoid this mistake, stay away from investment fads.
Mistake #8: Waiting to sell a loser
Sometimes, we hang on to a losing stock, hoping that the price would kick back up to the original price you spent buying it. The problem with this approach is that you’re losing even more because first, the stock price could keep plunging and you’ll lose more money. Next, you could be making better use of your money in a better-performing stock.