Investing your money is a sensible way to set yourself up for the future, but it can be very daunting. There is a lot to learn and the fear of losing it all puts a lot of people off. But as long as you do your research and you start slowly, anybody can start investing. However, when you’re new to the world of investing, it’s important that you avoid some of the pitfalls that beginners tend to fall into.
A few simple errors could lead to some big losses, and that’s bad news if you are relying on these investments to secure your finances for retirement, so it’s vital that you know what the dangers are and how to avoid them. These are some of the biggest mistakes that new investors make.
1. Not understanding the investment
If you’re looking to invest in a company, you probably want to pick a tech startup, right? The tech industry is huge and it’s always growing, so it’s a great place to put your money. That might be true in a lot of cases, but there are plenty of tech companies that fall flat in the first year. The mistake that a lot of people make is investing in a business that they simply don’t understand.
If you don’t really understand the product or the business model, how can you be sure that it’s likely to be a success? The short answer is, you can’t. So many people put their money into a company because they think it sounds impressive and they’re sure that it’s going to be huge, but unless you actually understand the company and the market, you shouldn’t invest in it.
2. Investing in a company you like
If you find a company that has an amazing product that you love, you might decide that you want to put your money behind it. But just because you love the product, that doesn’t mean that everybody else will. When you are choosing a startup to invest in, you need to keep your own opinions out of it.
Don’t look for companies that you think are great, look for companies that are performing well, have a solid business plan, and have the potential to be a big success. As soon as you start letting your emotions get in the way, that’s when you’re going to make poor decisions and lose money.
3. Forgetting about fees
When you get started with investments, it’s natural that you’re going to be excited about the prospect of making money, but have you considered your costs? There are a lot of investment manager fees that you need to cover and if you aren’t careful, they can eat into your profits a lot. The fees vary depending on the investments that you put your money behind and the brokers that you use, so you need to consider this when you are making your decisions.
Don’t forget about taxes either because they can be very expensive on certain investments. If all of your money is in investments that are highly taxed, your profits will really suffer. You may be better off putting your money into tax advantaged investments like retirement funds so you can reduce your tax bill.
4. Unrealistic expectations
If you are going to be successful in your investments, you need to manage your expectations. You’re not going to double your money overnight and if you want to see any returns, you have to be patient. So many new investors go in expecting to make loads of money in a few months and when they don’t, they get impatient and start making bad decisions. When you have a strategy, it’s important that you stick to it and wait until it pays off. If you get impatient and start changing tactics, you will not see any good returns.
5. Not recognising losses
No matter how sensible you are with your investments, you are always going to make losses at some point. But the biggest mistake that new investors make is not recognizing these losses. Often, it’s best to sell and get out before the value of a stock dips even lower.
But some people decide that they are going to wait it out in the hope that the price will increase again and they can at least break even. Unfortunately, it doesn’t usually work out that way and by waiting, you are just increasing your losses. It’s best to take the hit and cut your losses rather than wait it out in most cases.
If you can avoid these basic mistakes, you should be able to find success with your investments and reduce your losses.