When it comes to creating an investment strategy, everyone makes mistakes. Whether your experience in investing is just beginning or you are an old pro, investments can backfire and sometimes cause serious losses. Although all the issues associated with investing cannot be entirely avoided, it is important to have a clear idea of what you should and shouldn’t do with your money before making an investment. Below are five pitfalls which can easily hurt investors:
Investing without a Plan:
As with anything else, it is vital to map out a plan before beginning the investment process. Just as you wouldn’t begin a building project without first having a clear idea of the path you will take and the material you will need, you should never invest your money without first mapping out a clear and concise plan. The more you plan now, the easier it will be to have an understanding of where your money is going.
As part of your plan, you should consider your desire for the investment. Having an objective goal in mind for your money, such as retirement or college education for you or your children, gives you a clear objective. It is also important to determine the risk level with which you are comfortable. While some people prefer a conservative route, others desire to invest in something a little more aggressive. This is something you need to decide beforehand as it will help you determine the right investment route for you.
Additionally, it is important to think about and research the types of assets in which you want to invest based upon which ones will help you achieve your desired goals. Each group of assets has a wide diversity; therefore, you need to examine these diversities to ensure you have a good balance of investments. Initial mapping such as this gives you clear and concise goals and can also keep better track of your investments.
Making Emotion-based Decisions:
Even though many of our everyday responses and decisions are based upon emotions, allowing this to occur within the realm of investments could be detrimental. Emotions are ever changing and are mainly based upon the information right before us. Therefore, buying or selling based upon a gut-feeling is not advisable. Before investing in a particular asset, it is vital to do research in order to make knowledgeable decisions as to whether it is truly a worth while investment. You should also not allow emotions to determine whether you sell an investment. Although you may be tempted to hold on to an asset that is constantly losing money in hopes that it will turn around, unwillingness to admit you picked a bad investment should never be your reason for staying with something which is failing. Such pride will only result in more loss.
Putting your Investment on Auto-Pilot:
There is no need to watch your investment 24/7; nevertheless, it is important to check it on a regular basis. Monitoring your investments can help better determine if they align with your goals.
Following the Crowd:
When it comes to investing there is no one size fits all. Just because a stock is highly recommended by others or has proved successful for a specific crowd, doesn’t mean it is right for you. This is especially true regarding investments you hear about in the financial news or from friends and family. Although it may be worthwhile to check on these investments, it is important to do you own personal research so you can make decisions based upon your findings.
No matter how much or how little you have invested, you want to make your investment grow. For this reason, it may be tempting to change assets regularly based upon how well something is doing presently. However, shifting your assets often does not give your investments a chance to grow. Additionally, just because something appears profitable now, does not mean it will continue on the same path in the future.
Successful investing depends a lot on common sense and knowing where potential missteps and pitfalls may occur. Therefore, making careful decisions based upon clear and concise research will help you to avoid many of the mistakes found within the investment realm.
Investing involves risk including loss of principal. No strategy assures success or protects against loss.