Investing is always a smart decision but like most things in life it is prone to human error and emotion which leads to poor decision-making and bad judgment. If done wisely, investing can lead to a comfortable retirement where you can enjoy your Golden Years by traveling and spending time with family and friends. Take care to avoid the most common mistakes investors make.
Not Investing
The most frequent and costly mistake is not investing at all. Either out of fear, ignorance or procrastination many individuals waste decades of potential returns by not being a part of the investment community. Even something as simple as setting aside $25 per month and placing it into a money market account is better than nothing and can make a huge difference over time.
Being Greedy
There is a common saying that investors should sell on greed and buy on fear. Market bubbles happen when investors get greedy and inflate stocks to the point where their values are unsustainable. Avoid becoming greedy by setting a sale price and sticking to it and by not purchasing “hot” investments to begin with.
Not Diversifying
Portfolio diversification is instrumental in limiting exposure and minimizing potential losses from market downturns. A properly diversified investment strategy will include stocks, bonds, mutual funds and real estate so if any one market segment suffers then the negative impact will hopefully be negligible.
Micromanaging
Just as most employees are less productive when supervisors micromanage their work, micromanaging your investments has proven historically to lead to lower overall returns. Investments should only be purchased for the long run since any fluctuations in price tend to flatten out over time. A buy-and-hold strategy almost always leads to better returns than constantly buying and selling.
Impatience
Many new investors will purchase a few stocks then check the price every day and after a month become impatient and sell. Impatience is one of the worst characteristics of investors since most stocks will have a slow and steady growth over many years.
Becoming Emotional
It is quite common for many investors to develop emotional attachments to investments they’ve purchased. For one reason or another, an investor will purchase a stock and refuse to sell it even if it is no longer performing. Many investors won’t sell out of stubbornness, attachment or denial. Only make decisions about holding an investment if logic and analysis hold true and can justify continued ownership.