To enjoy a comfortable financial future, investing is absolutely essential for most people. Your investments help you plan for your future commitments and allow you to feel financially secured. But, investing requires patience, time, and work. If you don’t pay attention, investing can be difficult and costly.
First-time investors invest too quickly and fail to commit to learning from others’ mistakes. You may avoid making those mistakes by reading about the basic mistakes that most traders and investors make.
Here are the 10 investment mistakes that new investors most frequently make:
Common mistakes that a new investor makes
New investors usually work with the same investment advisor with whom their parents, friend, or other family members work. Yet, a consultant who is ideal for another person may not be suitable for you. Before selecting an advisor, think about your requirements, the kinds of clients they serve, and how much control you desire over your investments.
Before making a decision, do your research on investing. This is a crucial stage because it ensures that you understand the risks involved, including potential losses or gains. One must assess how a new investment fits into their current portfolio, and know the costs and any early withdrawal penalties.
Some investments gain popularity because of media attention, celebrity endorsements, or their own aggressive advertising. Friends may also suggest investment opportunities to you based on their personal preferences. Individual investors should be cautious about engaging in this kind of “herd behavior”, although it can be alluring and comforting to follow a larger group.
You can achieve your financial goals by developing a plan that suits you. Assess your investment strategy regularly. Make sure it is flexible enough to be changed in line with the change in your financial goals. Following a plan, you can determine your investment portfolio for short- and long-term goals.
Your approach should be clear and practical and contain details about your risk tolerance, investment strategy, asset allocation, and the timing and methods of rebalancing your portfolio.
Many investors overestimate their capacity to “beat the market” through frequent trading. As soon as they open their demat account, they become desperate to spot “multibaggers” and receive handsome returns in a short time. Such desperation and looking out to make a quick buck is detrimental to your finances. Not only do you risk losing your money, but such desperation has always led to disastrous financial conditions.
Instead, it’s always advisable to take the slow approach and ensure that your finances grow in a stable manner. LenDenClub’s FMPPs allow you to become a money lender that can help you grow your investments over a given time-frame with annualized returns averaging 10-12% p.a. Risk-diversification and compounding are some features that are embedded in LenDenClub’s FMPP. So all you need to worry about is the amount of investment that you want to make, plus selection of the time-frame through which you want to stay invested. The rest is taken care of by the platform on your behalf.
One of basic human tendencies is to overestimate one’s own ability. This also applies to our investment decisions. Our overconfidence gets compounded by how we see new information—we tend to view it in a way that confirms our existing knowledge.
As a result, in a bull market, when assets usually perform well, we conclude that our trading choices generate larger returns for us.
When assets under perform during a bear market, we blame the market and cling to the belief that we’re still good traders.
We won’t become inferior by admitting that there is a lot for us to learn. Knowledge and constant learning help us more than overconfidence in our abilities.
Positive performance in the past does not guarantee a good performance in the future. This is a crucial lesson for both new and experienced investors. An investment that performed well last year might not perform well this year.
Find investments that suit your risk tolerance and your financial plan.
The money you save can increase more quickly by keeping it invested to generate a return. If you invest the money you started with and the return on it, your money will grow more quickly. It’s known as compounding. Both assured, and non-guaranteed investments can be compounded.
Reinvesting your earnings can help you build your savings more quickly and reach your financial objectives faster. The money invested with LenDenClub is reinvested, along with the annual interest, at the end of every year, compounding the lender’s principal amount in a hassle-free process.
Not all investment types perform well all the time.
Events globally and shifts in economic variables like interest rates, currency rates, and inflation rates have varying effects on different sorts of investments.
With the help of diversification, you can create a portfolio whose risk is lower than the combined risk of individual assets.
If your portfolio is not well-diversified, it will be too risky.
You can diversify your portfolio by becoming a money lender on P2P lending platforms. Some of the best investment platforms in India like LenDenClub offer returns upto 10-12% p.a.
Don’t Give Everything to your Investment Portfolio
Last but not the least; your investment portfolio should work for you, not the other way around. It’s very important to cap your investments to limit your exposure to risks. A person who is determined to secure his future and achieve financial freedom may think of placing a large part of his monthly earnings in various investments. But, in our quest for a better future, we should not let go of our present. Having enough liquidity secures our present and a secure and happy present is crucial for a happy future.
These are a few common mistakes that new investors make while investing. We cannot avoid making mistakes completely as we are human beings after all. But we can surely minimize our mistakes and financial losses by learning from others’ experiences and mistakes.