Let me narrate a story of taking the easier route and the disaster that followed.
In a group of 4 who received their first salaries, one has this urge to invest while the others spent their money lavishly.
The one who wanted to invest had two options, either to start learning about investments and how they work or to listen to a set of friends who are already investing. Guess which route he took?
The easier route! He did listen to his friends, who are also a newbie in the world of investments. And where did they consume their knowledge from? The financial influencers on social media. I guess you’d have guessed what happened next!
He did lose a large chunk of the investment as the stocks he bought plummeted. Making an investing mistake is just the same as lavishly spending it elsewhere. Mistakes allow you to learn valuable lessons, but what if you could learn from others’ mistakes? In this blog, we present the most common mistakes to avoid while investing.
5 major mistakes to avoid while investing
- Having a favorable bias toward a company or brand
As soon as we start seeing our investments do well with a company we invested in, we tend to grow more fond of it. It is like supporting a cricket team and playing fantasy cricket. You won’t win the fantasy game if you pick your favorite players from your favorite team. Always keep in mind they are an investment, if needed you have to be ready to pull the plug on the investment.
- Being impatient with your investment
Don’t let the haphazard nature of the market get to you. Once you get caught in the loop of an impatient approach is a recipe for disaster. A slow and steady approach to portfolio growth will yield greater returns in the long run. Keep your expectations realistic, learn the knack of judging when it’s “high time” and head towards slow and steady growth.
- Listening to social media influencers won’t help
Well, we started off this blog with an example of how financial influencers influence the way you invest. It is important to understand something, the influencers’ need for investment is not similar to your need for investment. Your needs might be lent towards making money while others’ goals would be to basically save on tax. Define your goals, and gather insights accordingly.
- Neglecting diversification of investment
One of the most common investing mistakes is when greed takes over and makes an investor invest in an asset that gives great returns. And many a time, people pull out of other investments to make an added contribution to this asset. Another recipe for disaster because if the investment falters, you will have to handle a huge loss. So diversify your investments to avoid major losses.
- Investing in hard and illiquid assets
When you invest a majority of your money in illiquid assets, they might tend to hold you back at some point in time. Your investments should also serve you as an emergency fund if you need to sell which wouldn’t be the case with an illiquid asset.
Well, that’s what we’ve compiled as the 5 major mistakes one makes in terms of investments. There might be other newbie mistakes too, and we’d love to hear from you. It’ll help us come up with our next compilation of the 5 investment mistakes to avoid.