You may start thinking about investing, because you’ve just received a lump sum of money, a tax refund, a bonus, or a raise. Or you may be thinking of buying a house in the future and need to invest some money for a down payment on the house down the road.
Either way, one thing to be mindful of is that investing is not risk-free. Imagine what it would be like to lose all of your money. So before starting this intimidating process, make sure you work with a financial advisor, and read these tips below to avoid some of the common, yet deadly investing mistakes people make.
Here are the 4 common investing mistakes you must avoid at all cost.
1. Invest with no plan.
If you’re not sure why you’re investing, but just want to make a lot of money in a short period of time, then you’re in a world of trouble. Whether they are short term investments or long term investments, you must have a plan.
Intelligent investors don’t rely luck and invest blindly. Instead, they have a plan. They do their research on the kind of investments they want to pursue; the amount of risks involved; how much profits they can get from the investments, etc. It’s important you have a goal. After all, if you don’t know where you’re going, how will you ever get there.
If you’re a beginner investor and needs some help to navigate the process, your best bet is to consult with a financial advisor to develop an investment plan for you.
Indeed, financial advisors are experts in their field. Good advice from a top financial advisor can help you save money and invest money in better investment options.
Click here to work with a financial advisor using this free matching tool. This tool will match you up with up to three top financial advisors in your neighborhood. For additional information, read: 5 Mistakes People Make When Hiring Financial Advisors.
2. You’re not aware of your risk tolerance.
Investing in stocks can be very risky; very risky, in fact, you can lose all of your money within a manner of seconds. Suppose you buy 500 shares of company X with $10 a share. The next month, because of some bad news, the stock went down to $5 a share. At that point you lose $2500, half of your initial investment. If the company went bankrupt, you would lose everything.
So before you start investing, know your risk tolerance and weigh it against possible returns. So find out how much risk you can take. Some people are more cautious and more conservative than others. While others can stomach very big risks. So which one are you?
An experienced and well informed financial advisor can explain to you the risks associated with different kind of investments so you can sleep better at night.
3. Your investment portfolio lacks diversification.
One of the deadly and costly investing mistakes to avoid is to tie all of their money into one type of investment. Again, with the example above, if your investment portfolio only contains shares of company X and company X goes bankrupt, you will lose all of your money.
So you need to diversify. Diversification simply means having different assets in your portfolio so that any losses made on some assets will be balanced by what you gain on others.
So, a smart investor would have a mix of investments in his or her investment portfolio, so that the risk is balanced.
4. Not monitoring your investments.
Another common investing mistakes people make is adopting a ‘set it and forget it’ approach. This is mistake that can cost you a lot. How would you know if one of your stocks is down 50%? Although, it’s a good idea to hold a stock for the long term. However, sometimes it’s best to cut our losses and move on. So, you need to keep an eye on your investments.
Work With The Right Financial Advisor
You can talk to a financial advisor who can review your finances and help you reach your goals (whether it is paying off debt, investing, buying a house, planning for retirement, saving, etc). Find one who meets your needs with SmartAsset’s free financial advisor matching service. You answer a few questions and they match you with up to three financial advisors in your area. So, if you want help developing a plan to reach your financial goals, get started now.
For more information on investing, read: