Making mistakes is a part of life. Similar to every other experience in your life, you can expect to make investment mistakes at some point in your investment experience. Here is a list of five common mistakes investors make when investing. Keeping these common mistakes in mind when investing can help you save more and save smarter.
Investing Without Researching
It cannot be emphasized enough—you must do your research when investing. It is only natural to want to take the path of least resistance as a material being. The brain consumes a large quantity of energy and attempts to minimize its consumption by always taking the route of least resistance. This fact about the brain may give you an excuse to be lazy or it could motivate you to create new habits.
The brain has a certain amount of plasticity which can be used to your advantage. Investing in a company you work for or large companies that are constantly mentioned should only be done after the company has been researched. For example, investors who allowed the hype of the dot.com bubble to cloud their judgment were at risk of losing everything. But sometimes it is impossible to invest the amount of time required to adequately research how to invest. In cases like this, it is best to invest in a great advisor. You can find great advisors on websites like infinityinvesting.com, where you can seek out advice from the best experts with ease.
Making Yourself an Easy Target for Online Predators
Every once in the while, a golden opportunity like Amazon, Bitcoin, or Apple comes along, but this is the exception, not the rule. Investing with an instant, large return in mind makes you an easy target for online predators. For this reason, penny stocks and overhyped cryptocurrencies are best left alone. Investors must always be cautious before clicking on links or investing in a new product. Researching how to stay safe while trading online could save you thousands.
Not Having a Diversified Portfolio
Investing in more than one type of investment vehicle lowers your risk of losing your whole portfolio in the event of a downturn in the market. It may be easier to invest in companies you have heard of, but this can greatly reduce the diversity in your portfolio. For example, investing in only the technology sector can be highly risky. Although some successful companies made it through the dot-com bubble, the number of companies that failed outnumbers those that were successful. Investing in ETFs or mutual funds are easy ways to create a diversified portfolio with minimum research. Keep in mind though, not every ETF or mutual fund will replicate one of the major benchmark indexes.
Allowing Your Emotions to Cloud Your Judgment
During a bull market, it can be easy to get lost in the exhilaration of the market. During times of market speculation of a correction, it can be difficult not to become unnerved. Whether the market is up or down, investing based on emotions is not the correct way to invest. Diversification of your profile allows you to create protection against market volatility. Treasury bonds, treasury notes and corporate bonds provide a great way to balance out your portfolio, lessening the chances of a knee-jerk reaction.
Investing for the Short-Term
Remaining shortsighted with your investments will cost you in the long run. Overall the market has continued to expand since the 1970s. Selling a majority of your equities the moment there is any type of dip is counterintuitive. When investing, you should have a ten-year goal in mind. When it comes to your 401(K) plan, you should be adding the maximum amount to your plan, especially if your employer is contributing to your plan. Sometimes financial hardship can prevent you from adding the maximum amount, but whenever it is possible, always contribute the maximum amount. You are missing out on free money every time you miss out on an opportunity for your employer to contribute to your plan.
Investing for retirement is necessary for every American. Unfortunately, only 36% of non-retired adults have confirmed that they are saving enough for retirement. A shocking 25% of non-retired adults have confirmed that they have no savings for retirement. Investing can be a difficult undertaking, but by remaining level-headed, creating a diversified portfolio, and researching and avoiding online predators, you can safely invest for retirement.