We’ve had the opportunity to work with many students over the years who don’t have a clue as to where or how to invest their money. The biggest reason is they were neither taught how to manage their finances or investments in school/work and then when they have some money to put into an investment, they make decisions like amateurs and ultimately, lose money.
Here are the 4 most common investing mistakes that you should avoid making:
- Don’t have a plan for your investments and try to do it on your own. Typically, when you don’t have any investment knowledge or experience, you should consult a financial expert or learn from an experienced investor who can help guide you from the pitfalls of investing. Trying to do it by trial and error is not the best way and will cost you a lot of what we call tuition money. An experienced advisor or investor has the know-how and plan that can help you reach your financial goals.
- Taking on too much risk in investing. Many people are so obsessed with trying to rapidly grow their investments that they take unnecessary risks to achieve their investment objectives. Taking managed risk and diversifying your investments is a normal part of investing no matter what stage in life you are at. Generally, as you get older, you should be taking much less risk and focus on capital preservation and/or steady income growth.
- Following the latest hot stock or trend. Instead of investing for the long term, investors choose to try to make quick money based on purely speculative short-term trends. There is nothing wrong with speculating on an investment as long as you manage your risk accordingly and not base your entire investment portfolio on only short-term speculation. Think of both short and long term goals in your investments.
- Taking advice from novice investors or from friends who have a hot investment tip. This is a similar point to #1 where investors don’t seek investment advice from qualified or experienced professionals. They get caught in the thinking of get rich quick investment schemes or taking bad investment advice from inexperienced investors.
The key is educate yourself and surround yourself with experienced investors or experts. Happy Investing!