When it comes to investing, timing is nothing, but time is everything. Here’s the clincher: investing the wrong way could erase your potential earnings, no matter how early you start. It happens more often than you think. Judgment calls could be wrong, market risks could be ignored, and impulsive decisions could derail your investment train before it even catches momentum.
To help you navigate the waters of the investing world, here are the top six investing mistakes you should be avoiding.
Not Setting Clear Investment Goals
Not defining your goals and your risk tolerance for each of them is a one-way-ticket to failure. True, you can invest blindfolded and still earn big, but stories like that are few and far between. My advice: set goals that are attainable, practical, and measurable.
Visualize what you want to achieve and assess if your current financial situation jives with your investment objectives. Decide on short-term, medium-term and long-term goals. Every now and then, you should also revisit your goals as you expand your porftolio to make sure that your goals and your resources match.
Not Automating Your Savings
Investing is about commitment or staying true to your investing ritual, whether it’s allocating a portion of your monthly income or diverting your windfall to a fund. It looks simple on paper but—amid spending temptations and the non-tangible nature of investment returns—sticking to a strict investing regimen is anything but easy. Trust me, newbie investors can break faith in a few months–if not weeks–if left to their urges. What’s the best way to do avoid that? Automate.
This method shifts your mindset from “Did I invest yet?” to “Oh cool, I invested already” and will ensure that you are hitting your target on a regular, consistent basis.
There are many ways to automate investing, the specific method usually doesn’t matter, as long as automation happens. I recommend arranging an automatic transfer from your payroll account to your investing account monthly.
Putting All Your ‘Eggs’ in One Basket
In investment jargon, this means you’re not diversifying. If you think you’re taking less risk by investing in a single portfolio, you’re doing the opposite. If things go South on that investment, you’ll be bleeding money. In contrast, equal distribution of investments (and risk) can offset your non-performing investments with the positive ones.
A Unit investment trust fund (UITF), a pooled investment fund by default, is one of the best investment instruments you can use to minimize risk and get higher returns that come from multiple asset sources. Most importantly, UITFs are managed by experts who’ll see to it that you get the most from your investment.
Not Listening to Analysts
Risking your hard-earned money without consulting experts can cost you big time. That’s why knowing the ins and outs of a financial market is vital before you make any big movies. Yes, you can watch the morning financial news or subscribe to newsletters/subscriptions for market forecasts. A word of caution: sometimes it’s best to take market news with a grain of salt, especially if you’re looking at weeks-old data. See to it that you get the latest news because a day in a financial market can be the difference between being a millionaire or pocketing a bag of change.
Letting Emotions Drive Your Decisions
Trusting your gut is one thing, but letting impulse cloud your judgement is entirely different. The former is reserved for those with financial clout gained from years of experience while the latter is for impulsive investors salivating at the thought of a big payout.
In your decision-making process, try to be as informed as possible. Consult with your advisors, trust your judgment, and back it up with the right information. In other words, take calculated risks.
Following the Crowd
Admit it. Whenever peers strongly recommend something to us, there’s a big chance that we’ll take it into consideration, only to be disappointed. When it comes to investing, following the crowd can give you short-term success but you’ll be running the risk of missing good investments in the long-term. That’s not to say that you shouldn’t emulate prominent investors. That’s still a good strategy but adopting someone else’s strategy might not work for you the way it did for them.
Source: Security Bank