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Successful investing isn’t always about how much money you make. It’s also about how much you keep. Keeping losses to a minimum allows your assets the potential to grow over time through compounding.
See below some common mistakes that investors (beginners and veterans) sometimes make and how you can avoid them.
1. Investing Without Research
Some people are able to make a living simply just by investing and selling stocks because they’ve done their due diligence in research.
Every move they make, whether it be buying or selling stocks, is done after they’ve read up on the latest stock trends. They’re keeping an eye on the fluctuation of their stocks while also watching out for stocks they might want to invest in.
There are several ways you can always conduct your research. Stay abreast with the news, research companies you want to invest in, have a mentor take you under his/her wing, and so on.
2. Not Diversifying Your Portfolio Enough
The problem with putting all of your money into one investment is that it can lead to absolute disaster if that single investment fails. If all of your money is in shares of one company and that company fails, you’ve lost all of your money. It’s wise to spread that risk around, at least a little.
Put your money into more than one investment — ideally, spread across many investments. This means that if one of them collapses, you don’t lose all of your life savings. You may even consider diversifying even further and invest in things like real estate, bonds and cash.
3. Thinking short term
Investing for the short-term simply may not give your investments time to potentially grow. This is particularly necessary if your goal is long-term, such as funding your retirement or college education for your kids.
If you’re looking for a way to get an immediate payout, then investing in stocks isn’t for you. A disciplined investor has goals for investing that they plan out far in advance, and achieve over the long haul.
You have to be committed to the grind. And sometimes, the best way to make a profitable return on your stocks is to simply wait it out.
4. Investing With Too Much Emotion
Too many people make investments in stocks by leaning on their emotions. They only invest in companies with which they already have a relationship. If you perform enough research, you can lean on your gut to make decisions. These are well-informed decisions that you can back up with facts. Decisions that you make on emotion can’t often be rationalized.
Figure out a diversified investment plan and stick to it, no matter what’s happening. There will be moments when certain investments rise in value rapidly, and other times where investments drop in value rapidly. Don’t respond to them immediately. Stick to your plan.
5. Using Money You Cannot Afford to Risk
When you invest with money that you can afford to risk, you will make much more relaxed trading decisions. In fact, you will have much more success with your trades, which will not be driven by negative emotions or fear.
You would be blown away if you could see how different your trading style becomes when you are using money which you cannot afford to risk. Your emotions get heightened, your stress level goes through the roof, and you make buy and sell decisions which you otherwise would have never made.
Therefore, you should never put yourself into the high-pressure situation where you are putting money on the line which you need for other reasons.
