When it comes to investing, it really isn’t that difficult to make money. If you do a couple of basic things, the odds are greatly in your favor that you will see your wealth grow. Sadly, too many investors ignore the basics and make investing mistakes that cost them greatly.
In fact, many times these investing mistakes can cost them tens of thousands of dollars. Luckily, with a little discipline, you can avoid these investing mistakes completely.
Just what are these investing mistakes? Below you will find the 5 biggest investing mistakes investors make and what you can do to avoid making them and losing money as a result.
5 Investing Mistakes You Need To Avoid
#1. Thinking You Are Smarter Than You Are
Many times this mistake presents itself early on, but it can appear at any point in your investment career. It usually starts out after you pick a winning stock.
You double your money and get over confident. You think you can’t miss and get lazy when it comes to your research. Or you think investing is so easy, you decide to give day trading a shot.
This quickly results in you losing money over and over again. If you had stayed disciplined and stuck to your investment plan, you would have avoided many of the losses and kept a lot of your money.
As easy as it is to get in over your head when you start picking some winning stocks, you need to check your ego at the door. Remember that no one is smarter than the market and when you do pick a winner, it has just as much to do with luck as it does with your research skills.
#2. Getting Emotional
When was the last time you made a smart decision when you were in a highly emotional state? The answer is probably never. The same is true when it comes to investing. When you get emotional, you stop making rational decisions.
You end up selling when you shouldn’t or you talk yourself out of a smart investing decision.
The easiest way to keep your emotions in check it to have a detailed investment plan. This plan should highlight why you are investing and what your goals are. The more specific the plan is, the more likely you will stick with it and make smart decisions, even when your emotions are running high.
#3. Getting Greedy
While greed is an emotion, I wanted to break this one out by itself for a reason. Too many times we let our own greed make decisions for us. Or we allow others greed to sway our decisions.
For example, the last time the market was read hot, how many random people were telling you about the can’t miss stock they were investing in?
I remember this when the Bitcoin craze was in high gear. Everyone was greedy and expecting to become millionaires overnight thanks to Bitcoin. My doctor was talking to me about it. Even a neighbor was telling me how his housekeeper was putting all her money into it.
The point is, when everyone is jumping on board with an investment, you need to stop and think. More often than not, this is a huge red flag that the investment is overvalued and ready for a crash.
#4.Not Diversifying
This investing mistake appears early on as a beginner investor is just getting started. They make a few good investments and keep investing in what they like and know.
The problem is that this strategy usually leads to a lack of diversification. All the investor’s money is tied up in closely related companies or within one or two sectors.
When the market drops, the investor gets slammed, losing more money than they should have, all because they lacked proper diversification.
As a result, the best course of action is to start out with a well-diversified portfolio. Pick a couple exchange traded funds or mutual funds in a few areas of the market and invest your money accordingly.
Once you have done this, then you can start investing in the things you know and enjoy. Even though you will be putting money into closely related investments, the fact that you have a large amount of your portfolio already diversified will go a long way to helping you avoid catastrophic losses.
#5. Not investing More
This one might sound odd, but many people make the mistake of investing a set amount of money and then stopping. They earn good returns on their investment, but they could earn a lot more if they just kept investing.
At the end of the day, the biggest determinant of your wealth is how much you can save, not what your return is. The more money you can invest on a regular basis, the more money you will have in the end.
The reason for this is simple. If you only invest a set amount of money, that set amount can only compound upon itself.
But if you consistently invest over time, each investment can compound upon itself. This leads to greater long-term gains over the years.
Final Thoughts
The bottom line is making investing mistakes can cost you a lot of money. While you cannot avoid all investment mistakes, you can limit them to a degree. The ones presented above are the most common mistakes investors tend to make.
By understanding what they are and taking steps to limit the chances of committing them, you can save yourself not only headaches, but a lot of money as well.
Written by Jeremy Biberdorf
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