Are you finding it difficult to make investments? Maybe you are new to this. I’ll tell you the Top 5 Common Mistakes New Investors Do when they first start to invest in any financial instrument.
So, the Top 5 Common Mistakes of New Investors Do is as follows:-
Lack of planning (DO NOT INVEST BEFORE CREATING A PLAN)
Planning is the key to achieving your goals and knowing what you can actually achieve. New investors are often guessing and blindly invest in stocks that appear to be performing well. Elements to consider are income and expenses; existing investments; risk tolerance; time horizon. The downside of not having a proper plan is that you don’t have an end goal, and as a result, your investment model can be highly volatile. This, in turn, can make you a reckless investor, leading to big losses if you’re not careful.
Avoid Emotional Investments
Emotion can be the # 1 ROI (Return of Investment) killer. Investors should not let fear or greed rule their decisions. Instead, they should focus on the big picture.
Too often, when we see a successful company we’ve invested in, it’s easy to fall in love with it and forget that we bought the stock as an investment. Always remember that you bought these stocks to make money. This is clearly not the best way to invest or trade stocks as the companies you know or love are not always the ideal investment options for your risk profile or financial goals. If any of the fundamentals that led you to buy from the company change, consider selling the stock.
Don’t try to time the market
The falling knife has no handle. It makes no sense to name the ups and downs of the market.
Trying to track the market also kills profits. It is extremely difficult to successfully plan a market. Even institutional investors often fail. You read the story of a successful stock investor like Warren Buffett and google his portfolio. Search results show his portfolio. You decide to buy the stocks or mutual funds or whatever that are mentioned in his portfolio because if he invested in them and made a name for himself in the stock market, what is wrong with imitating correctly? Wrong!
For example, this is one of the most common investment mistakes that private investors make. To avoid research and homework to find the best solution for themselves, they try to copy the portfolio of a successful investor and invest in the same companies. This approach is flawed for the following reasons:
You don’t know the entry point- Every time you invest in a business, it is important to know how much you should be investing in. When a stock is listed in a portfolio, you may not know when it was bought or at what price it was bought, and it might make sense for you to buy it at that particular time, or it might not.
For example, the person whose wallet you are trying to copy may have bought a share when it was Rs 20 and now it is Rs 100 loss when its value decreases.
Needless to say, it is very important to know the correct price to enter, the level of risk you need to accept, and the correct time to exit.
Mismatch in investor profiles and goals – your risk profile and goals do not have to match the well-known investor you are trying to copy.
He may have more funds and a higher risk profile, which means he can afford more risk and may have invested in certain stocks. If you secure his investment, you will end up in the soup.
He may have invested in risky stocks because he can afford them financially. If you copy his strategy, you will lose money and the determination to invest in the future.
The entire portfolio cannot be public – another reason is that a person’s entire portfolio is never published. When a large investor invests in a company, retail investors do not know anything about it until they have earned more than 1% of the company’s shares.
When a person’s participation in a company exceeds 1%, this must be made public. Thus, there is a huge possibility that there are several stocks in their portfolio that you may never know about, and that you will have an incomplete portfolio based on incomplete information.
The information is “publicly available”- Finally, if you are looking online for a portfolio of a famous stock market investor, this information will certainly become publicly available to other retail investors as well.
Most likely, this has already led to a rise in the price of shares. Needless to say, you are not doing anything else that would save you money. So you won’t benefit from such a long-term strategy.
Diversify your portfolio
Everyone knows that you should not put all your eggs in one basket. Investment diversification formalizes this popular wisdom to create “the only free lunch in finance.” In other words, due to the lack of correlation, the investor can reduce the portfolio risk without reducing the overall return. Failure to diversify your portfolio can also be costly in the long run.
Diversification is important as it helps to find a balance between risky assets and more stable options. Thus, your capital cannot withstand the possibility of destruction.
Investing in just one asset class, like stocks or commodities, increases your risk significantly. And even if you are a risk-sensitive investor, it is not advisable to put all your money in one basket. While professional investors can generate excess returns over benchmarks by investing in multiple concentrated positions, ordinary investors should not try to do so. It makes more sense to stick to the principle of diversification.
Take someone else’s advice
Most often, we turn to our friends and friendly people for advice on important life issues, and finances are no different. However, when it comes to investing in stocks, relying on the advice of friends and just buying the stocks they bought is not the best way to go.
It doesn’t work because your risk profile and financial goals may be very different from the other person’s, and what worked for them may not work for you.
Do absorb all the information, but do your due diligence in the company and convince yourself completely. It is only when you feel that your goals are aligned with the goals of the business that you need to go ahead and invest.
There are so-called investment experts everywhere. Many experts are actually promoters. They are paid for the endorsement or have already invested in it. But this does not mean that their advice is wrong, they just do not think about your interests. As an investor, you should be careful not only with your investment choices but also with your sources of financial advice. Don’t trust anyone’s analysis and investment choices, not even mine, always check and do your own research to make an informed decision.
