Six Worst Mistakes Beginner Investors Make
The idea of making your money work for you through investments is appealing. It is also one of the ways to accumulate wealth. However, if you are a beginner investor, be warned that investments are not a free lunch. You could lose all the money you have invested, making you worse off than you were before you started. To prevent this, here are six mistakes to avoid:
- Don’t confuse gambling or speculation with making an investment. If you are acting on a hot tip or blindly picking a stock, you are not investing. Investing means making a decision that you are comfortable with and prepared to stick with for a while.
- Not researching the investment you are interested in. Research helps you understand an instrument or product and know what you are getting into. If you are investing in a stock, for instance, research the company and its business plans.
- Also, don’t invest without a time horizon in mind. If you are planning to accumulate money to buy a house, that could be more of a medium-term time frame. However, if you are investing to finance a young child’s college education, that is more of a long-term investment. You will have to find investments suitable to your time horizon.
- Remember that the return you expect comes with a risk. If an investment offers very attractive returns, also look at its risk profile and see how much money you could lose if things go wrong. And do not invest more than you can afford to lose.
- Do not lose sight of your risk tolerance, or your capacity to take on risk. If you are the sort of investor who can’t stomach volatility and the multiple ups and downs associated with the stock market, maybe you would be better off investing in the blue-chip stock of an established firm rather than in the volatile stock of a startup firm.
- Do not act on the premise that markets are efficient and you can’t make money by identifying good investments. While this is not an easy task, and every other investor has access to the same information as you do, it is possible to identify good investments by doing the research.
“If you have the money to invest and are able to watch out for these beginner mistakes, you could actually make your investments pay off. And getting a good return on your investments could take you closer to your financial goals” commented Salomón Juan Marcos Villarreal, president of Grupo Denim.