While one cannot eradicate mistakes when it comes to investment, you can learn from them. Irrespective of your level of expertise, you are going to mess up one day- Don’t be scared of this fact, instead, embrace it. An essential take away from this write up of mine; is to teach you how to avoid common mistakes made by other investors.
Make no mistake; investment is one of the best things that can happen to you. This simple decision can set you up financially for life. One thing you must note is that; It is not the act of investing that is bad, but what you do after your investment. Follow me as I share with you common investment mistakes new investors must avoid.
Mistake #1: Procrastination or fear of starting
Let me share one fact with you: Do you know that every second or minute you wait to start investing; you are losing money? Yes, that’s right. Instead of harboring the fear of failure, why not take the bold step today and invest your money. All that money wasting in your savings account cannot do you any good.
As a beginner investor, you can start at your own pace. Most of the investment platforms give you the opportunity to invest any amount. In fact, with as little as ten bucks, you can fund your US stock market wallet. Don’t wait till you have thousands until you start investing.
Many people have this illusion that they are better off saving their hard-earned money. But at the end of the day, you won’t get an extra penny. While not invest that money instead and make more with what you have and live a life of financial freedom.
Mistake #2: Choosing the wrong broker
When starting out or as an established investor, you have too many investment options. Picking the wrong broker to manage your personal account can limit your investment options– making you lose money in the long run.
As a new investor, the best strategy you can use is to invest in both ETFs and index funds. If your broker lacks varieties of these funds, it can limit your future investment options. Another thing to note is that the transaction costs on these funds vary depending on your broker. Imagine as a newbie working with a broker that offers only high expense ratio funds as well a high fee on index funds.
A solution to the above is to do extensive research when picking online brokers to manage your personal account. Look for those brokers that offer ETFs and index funds with low costs.
Mistake #3: Avoid Individual Stocks
The odd is always against you when it comes to investing in individual stocks- irrespective of your level of investment expertise. It is a lot like gambling. This is one of the reasons why it is difficult to find any individual with streaks of success when it comes to individual stocks.
While putting your money in index funds and ETFs is similar to individual stocks. Here, you are playing as the casino, and your chances of success are very high long-term. What would you rather be? A gambler or the casino.
Avoid individual stocks like the plague- instead, invest long-term in index funds and ETFs.
Mistake #4: Putting money in High-cost ETFs and Index Funds
While index and ETFs investing is not bad, investing in high-cost ones, on the other hand, is a big mistake. When looking out for index funds to invest in, go for the ones with 0.05% expense ratios and lower. Why pay for 0.5% expense rations when you can spend far less.
What is an expense ratio? This is the yearly percentage a fund takes from your money. Investing in high expense ratio index funds will deteriorate your returns. One can make a million-dollar mistake when it comes to picking the right low or high expense ratio index funds or ETFs.
Invest only in low-cost index funds and ETFs while avoiding any expense fees that are more than 0.1%.
Mistake #5: Poor Diversification
Not diversifying properly can be a different thing to different people. While some are satisfied with their one-fund portfolio, I spread mine across five to seven index funds. One mistake you must avoid here is not to rely heavily on a single bond all your investment life. History has shown that stocks always outperform bonds.
Watch the current trend and invest as appropriate. This will prevent a future regret on lost opportunities and sticking with the wrong investment when you can do better.
Invest based on the current trend and do not rely too much on bonds.
Mistake #6: Don’t try to predict the market
Except you maybe you have a supernatural power I’m not aware of, don’t even try to time the market. While you are seeing a bunch of articles telling you to hold on investment because the market will dip, another one is telling you that there is no better time to invest.
My advice and personal opinion that I have continued to share over the years is that the best time for investment is now. Better to be invested than try to be invested. That moment you are waiting for a dip in the market, might you be when it continues to grow. What do you do? You continue to wait on the sidelines- losing money!
Mistake #7: Not Investing Enough
A staggering data from the Federal Reserve and FDIC shows that the average savings of an American household are only $11,000. What is further painful is that another 30% of households have less than a thousand dollars in savings. We have to do better as Americans to secure our future financially.
If you are reading this article and your savings or investment towards your long-term goal is less than 20% of your earning, it is time to rethink your financial situation. There is no shame if you don’t know this before. However, the time to review things and start investing is now. Take out your notebook, calculator and make a budget.
I know that diving into the area of finance when you are not an expert can be intimidating, but I assure you it’s just a bunch of number that you will quickly get through when you set your mind to achieve the goal. We all make mistakes and learn from them. Don’t let this stop you from investing in your future and that of your family.