4 Common Investing Mistakes That Beginners Make
So you finally have money to invest. You’re not sure where to start, but you really don’t want to screw it up. Can you spot the next Google, or are you sinking your money into the next Bre-X? Although there’s no such thing as a guarantee when it comes to investing, there are some common rookie mistakes that will cost you. Here are some surefire ways to make your money disappear, which you should avoid at all costs.
4. Getting Hoop Dreams
We’ve all thought at one point: “Man, if I had only invested in [Microsoft, Google, Apple] before they took off, I could be retired right now, sippin’ on daiquiris in Cancun right now.” While that’s technically true, you need to remember they are the exception, not the rule. For every tiny start-up that becomes one of the world’s largest corporations, there are many, many more that fail. Hundreds of them. Thousands, even.
It’s no secret that the key to good investing is diversification. Putting all of your money in a small company that you think is going to explode soon is no better than instead putting all your money on a horse with a cute name. So while putting some money behind high-risk startups isn’t a bad idea, you need to spread your money around in order to safely make your money grow.
3. Getting Bored
Investing is long term game. The idea is to protect the money you’ve earned and make it grow faster than it would in a savings account at your bank. So jumping from investment to investment is not the way to do it. This isn’t a slot machine that pays out an instant jackpot. Trends are constantly coming and going in the investment world, just like in any other sector of society. Just because certain stocks are jumping up this week doesn’t mean you should switch. Stick to your plans and keep your eye on the long term. It’s not about turning a profit in 30 days. Or even 365 days. You want the results in 20+ years.
2. Getting Personal
You need to be able to separate your personal feelings from your investing. So what if you don’t want to invest in a company that drills in nature reserves or operates factories in third-world companies? By all means, you don’t have to. There are more ethical options available.
On the other hand, you don’t have to invest all your money in a company simple because you work there. Or because you love their product. A charismatic CEO should not be enough to secure your investment. Your personal feelings won’t make a company gain or lose money, only that company’s finances will. So look at the numbers, and go with your brain rather than your gut.
1. Getting Romantic for an Underdog
So you’ve been hanging on to a stock that just keeps losing. You know you should get out, but if you sell it, that loss becomes very real. It can’t be undone. So you hold on, hoping the company will recover. You want to be the loyal best friend that stuck it out, always believed, and reaped the rewards.
Don’t do this.
It’s not a personal insult for you to take your money out of a falling company. When investing, you’re going to lose sometimes. You have to accept that and move on. Cut your losses and find a new company that is primed for growth. The average person well sell a stock soon after it gains (to lock in the small profit) and hold onto losing stocks unusually long, hoping for a rebound. You should be able to see that both strategies will cost you money in the long run, and should be avoided. Dump the losers, but hang on to those with steady growth. Remember: it’s a marathon, not a sprint.