If you’re new to investing, it can be easy to make crucial mistakes. Unfortunately, while you may learn from your mistakes, your education won’t come without a cost. These tips can help you avoid common and costly investing pitfalls.
Investing in Businesses You Don’t Understand
While you don’t have to be an expert in the industries you invest in, you should know something about them. For example, if you invest in a restaurant without knowing anything about the restaurant business, how will you know whether or not it’s a good investment? If you identify some new innovation that you expect to perform well, research that market first. Only by learning about it will you be able to determine if investing in the product will be a good risk.
Mistaking Investing for Gambling
There’s much more involved in smart investing than mere luck, which is all you have going for you in a poker game. Many people view low-priced stocks as a type of bet that the stock will eventually pay off. Sometimes, it does and the investor makes a small fortune on his investment. More often, however, the stock doesn’t perform as expected and the investor ends up losing or breaking even.
Letting Your Emotions Rule Your Investments
Even if you do your due diligence in researching stock investments, it can be easy to let your emotions run away with you. While the company may have represented a good investment in the beginning, this doesn’t mean it’s destined to perform well. People tend to cling to their investments, because they feel an emotional connection to the company or its products. However, the wisest course of action is to sell your stocks when a company’s circumstances change for the worst.
Invest for the Long Haul
Over time, you can expect a 5-7% annual return on your investments, provided you maintain those investments over a longer period of time. While that may be more modest than you expect, it is a reasonable rate of growth that can help you meet your long-term financial goals. Smart investments maintained over a longer period of time will ultimately perform better than impulsive investments that are bought and sold within a matter of months.
As these tips suggest, most investing mistakes are made by leaping without looking. Taking the time to learn about each investment will help you to make wiser decisions. While there’s always a risk of loss, being informed helps you minimize those risks.