According to a report by Statista, 55% of American adults invested in the stock market in 2020. It’s easy to see why. Besides bringing you wealth in real-time, investing ensures a steady source of income in your golden years. In essence, it puts you in control of your financial future.
But while investing is critical to building a bank balance, it certainly has a few pitfalls, including hard-hitting financial losses. As a result, first-time investors need to tread with caution.
Fortunately, with a little education and solid counsel from financial advisors in Gainesville, you’ll have no trouble dodging investing hazards. In this regard, here are seven of the most common investing mistakes you should steer clear of.
- Banking On One Option
When you put too many eggs in one basket, you risk losing everything in one go. Instead, consider diversifying your portfolio as much as you can. This way, a single underperforming investment won’t send all your finances for a toss.
According to financial advisors in Gainesville, you can expand your investments by:
- Dividing your money across multiple asset classes, such as bonds, real estate, and stocks, among others.
- Investing in different avenues within the same asset class (for example, purchasing stocks in different industries).
- Not Understanding Risk Tolerance
Usually, the greater the risk, the higher the potential return. But unless you have a comprehensive understanding of risk tolerance, you may end up making some expensive errors.
Before diving headfirst into investing, take a risk tolerance assessment to determine how much money you’re willing to lose if your investments go through a rough patch. Also, avoid high-pressure situations where you may have to put your retirement fund or emergency savings on the line.
Once you start investing with money you can afford to risk, you’ll be much more at ease. Furthermore, none of your trading decisions will be driven by fear or negative emotions.
- Constantly Timing the Market
It’s always a good idea to keep an eye on what’s happening in the economy. However, financial advisors in Gainesville generally advise against market timing.
Simply put, market timing is when you continuously transfer investment capital in or out of a market or shift money between asset classes, based on arbitrary predictions. It’s in contrast to the buy-and-hold strategy, where you invest for the long haul.
While market timing is viable for financial professionals, it’s usually less effective for the individual investor.
- Market cycles are unpredictable and there’s hardly any way you can accurately mark down their ebbs and flows.
- You have to keep a constant check on the movement of securities, asset classes, and funds: a job that’s labor-intensive and time-consuming.
- You may have to pay higher transaction and commission costs.
- Although you may gain additional profits from market timing, they’ll have higher taxes levied on them.
- Panic Selling
Panic selling is widely regarded as a critical investing mistake. It’s not uncommon for individual investors to backtrack from their investment accounts as soon as the economy starts looking shaky. Unfortunately, this can increase your problems further.
For starters, you will be compelled to sell low, given the unstable economic climate. To top that, you will also miss out on the recovery period that almost always follows any widespread market crash.
The easiest way to bypass panic selling is to have a solid investment strategy. If you are confident in your stocks and bonds, you can step back from them when the market nosedives. It’ll help you resist the temptation to sell. Alternatively, you can opt for the smart route and ramp up your investments during this time.
- Letting The Heart Rule Over the Head
As an investor, you’ll have to negotiate with several biases before making your final choice. In this regard, it’s important that you keep an even keel and do not let your behavioral impulses dictate your purchases.
The key to managing emotional investing is to understand the motivations behind it. For example, many non-professional investors are prone to occasional bouts of greed and fear: two powerful emotions that can overshadow common sense and provoke rash decisions.
In fact, CNNMoney’s Fear and Greed Index is based on the logic that fear decreases share prices, whereas greed makes them skyrocket.
Investing without emotion is no easy task, especially when it’s your hard-earned cash at stake. However, you can keep your feelings in check by understanding your risk tolerance and chalking out a foolproof investment plan. And, for the best long-term performance results, be sure to stand your ground during economic turbulence.
- Being Impatient
Like Rome, your investment account won’t grow in a day. Since the market operates at a gradual pace, you may have to wait quite a bit before any actual returns roll in. But lot of investors fail to come to terms with this reality.
Try and look beyond short-term fluctuations and focus on the bigger picture. Unless you feel like you’re on a sinking ship, it’s best to stay focused without letting impatience get the better of you.
- Getting Information from the Wrong Places
Be wary of ‘financial experts’ claiming to have a bunch of investing secrets up their sleeve. Instead, try and isolate reliable sources of guidance that’ll keep you on the right track, such as certified financial advisors in Gainesville. With years of education and experience in the bag, these consultants can provide you with all the information you need to kickstart your investing journey.
Wrapping Up
Mistakes are part and parcel of the investing process. However, once you know what they are, you’ll run a lesser risk of falling prey to them. Knowing about these common investing mistakes will help you develop a well-defined investment plan that’s set up for success.
Investing can seem daunting, especially the first time around. Fortunately, our financial advisors in Gainesville are well-equipped to help you through the process.
