5 Common Investment Pitfalls
You know that investing is important. Investments are how you allow your money to work for you, but investing is a patience game. Despite some day traders claiming repetitive thousands a day, real gains take time.
One thing about investing is it is a personal journey. Every person will have to learn from their failures and successes. Still, despite the individuality of the experience, there are some common pitfalls.
1. Having Unclear Investment Goals
The worst thing you can do when investing is go into it blind. You need to have specific goals in mind. What are you investing for? How much do you want to earn? What expectations do you have for the short term?
Understanding what you want from an investment helps narrow your options. The expectation of interest turnaround helps determine how much risk is too much. For instance, if you want faster gains, you will need a higher-risk investment, such as IPOs. People wanting stable profits with minimal risks might prefer bonds or index funds.
Your investing style is something you need to learn. Still, knowing what you expect from investments goes a long way in defining your strategy.
2. Being Impatient With Investments
Too many people look at the stock market or other investing channels for quick cash. People need to have realistic expectations, or they risk being impatient.
The average rate of return on investments is between seven and 10 percent. Unfortunately, because of inexperience, new investors expect high short-term gains. The unrealistic expectation can lead to rapid investment turnovers — the investor keeps moving their money from one "sure-thing" to the next.
The consistent changing of strategies reduces gains and can lose the investor money. Investing is not a get-rich-quick-scheme; it often requires time and patience.
3. Waiting Too Long To Start Investing
Most financial experts recommend starting to invest as early as possible. The experts suggest investing 10% to 15% of your income starting in your twenties.
Despite the advice, most people do not begin investing until their 30s, some even later. The older you get, the more challenging it is to reap the benefits of compound interest. Still, investing at any age can be beneficial, but you may need to rethink your strategy.
4. Investing Without Thinking of Short-Term Needs
Many people jump into investment vehicles without thinking about short-term needs. Often, a new opportunity arises, and the investor gets excited. Believing the opportunity is once-in-a-lifetime, they dive in without forethought. No investment should depend on a blind strategy. Financial risks deserve consideration, so give yourself time.
Before making any investment decision, you need to know if you can afford the long and short-term risks. Many investors can handle long-term investments because they often have fewer risks. Still, the option's safety can have investors committing before considering short-term needs.
You should never make an investment if it will leave you cash-strapped in the short term. Everyone needs money for unexpected and expected situations. Thus, be sure about your financial situation before committing to an investment.
5. Following Bad Advice
It is common to find many financial gurus when you begin investing. Regardless of their qualifications, many investors feel confident in handing out advice. The confident voices of seasoned, self-proclaimed experts sound reassuring to new investors. You should always research any "expert" and their claims. If you want advice, go to a qualified financial advisor. Do not trust a random expert trying to bilk you out of money.
Investing is often a long-term journey. You should approach it with patience and realism above all else.