When you are a new investor, it is far too easy to make mistakes. The key to any successful investor is investment research. Once you master this, it becomes far easier to navigate the world of investment. We have listed some of the key areas not to invest so you don’t get caught out and can make the most out of the money you choose to invest.
Don’t Invest in Something You Don’t Understand
Investing in something you don’t understand is a recipe for disaster. If you don’t truly understand what you are investing in, you are setting yourself up to fail. Know your product, know the company, and most importantly, truly understand where your money is going before you put your trust in it. The best way to avoid this is to build a diversified portfolio of exchange traded funds. Which brings us on to our next point.
Diversify: Don’t Put Your Trust in One Place
For the common investor, it is much wiser to stick to the principle of diversification. Build an exchange traded fund or mutual fund portfolio and allocate exposure to all major spaces. In building an individual stock portfolio, include all major sectors. As a rule, don’t invest more than 5 – 10% in one place. If this company goes bust, you’ll end up losing the lot if you hedge all your bets in one place. Additionally, don’t fall for industry concentration just because more experienced investors are doing it. They can afford to lose out! Typical market fluctuations can cause an industry sector to suffer. Lastly, failure to diversify by product type is also a poor decision to make. A strong portfolio should consider investments in equities, bonds, and cash. Investing in multiple investment products will assist with this by reducing volatility and allowing for better returns over the long term.
Don’t Try and Time the Market
A lack of patience can result in a lack of money. Slowly grow your portfolio and you will yield greater returns in the long run. Expecting a portfolio to do something other than what it is designed to do is a recipe for disaster. This means you need to keep your expectations realistic with regard to the timeline for portfolio growth and returns. Trying to time the market can also kill returns and successfully timing the market is extremely difficult, even for the most experienced of investors.
Avoid These Mistakes
Avoiding these mistakes is a must, but how? It’s simple – develop a plan of action. Proactively establish where you are in the investment life cycle. This is inclusive of what your goals are, and how much you intend to invest to achieve them. It’s also key to remember why you are investing your money in the first place. Look at historical market returns, don’t expect to get rich quick overnight, and remember, consistency is key when acquiring wealth. If you do not feel qualified, always speak to a reputable financial adviser for assistance.