Manage Money

4 Beginner Investing Mistakes You should Avoid

Are you getting ready to start investing, or maybe you are getting ready to start trading on the stock market once more to go beyond your retirement savings?

To build wealth, it is a good idea to put your money in the stock market, although it is not without risk. There is good news, though. You can easily decrease this risk by staying out of the way of some common investing mistakes. Here are the 4 moves which you need to stay away from.

Investing money that you can’t afford to lose

You do not NEED to buy stocks and compete in the stocks market, especially if money is dear to you. If the money you are risking is too important for you, do not use it for speculative purposes. Don’t get a loan for market speculation either.

There are so many things that can go wrong. You may decide in desperation that you need to sell after a market crash to recover your losses, or you may want to buy when prices are rising to get some momentum. The problem is that if you follow both these urges, you won’t make money. These can even lead you to a risky situation. If you take the above two steps, you are gambling instead of investing.

It is easier to keep calm, think ahead and make logical decisions, especially when you do not need to invest in funds immediately. The rule of thumb is you should not invest money that you plan to use in the next 5 years. 

Going for a quick profit

Everyone wants a quick win, but that is not the way to go in stock trading. Yes, you can lock into a profit by selling high. However, once you sell, you have the money that can and needs to be invested by someone else. This results in a risky buying and selling cycle. The more you do this, the more risk there is of making a wrong move and a big loss.

It is far better to get quality positions and then hold them for the long term. Seek out older, large and mature companies which are stable and growing for years. One good choice is reliable dividend players as they give immediate income along with an adequate chance to grow in the future.

You may also want to try large-cap, low-cost ETFs, S&P index funds for portfolio diversification immediately. This shall bring your portfolio to a near-market level performance, and thus can expect a 7% growth long-term.

Investing in companies and securities you don’t understand

Even famous investors like Warren Buffet have advised new investors not to make this mistake. However, this problem is all too common. In their hunger to get a quick win in the stock market, new players dabble in penny stocks or in businesses they have no knowledge about. They invest in companies whose products and services do not affect their lives.

The problem is that if you are not knowledgeable about companies, you cannot evaluate its future potential, nor can you know when conditions change. The same advice is for your securities. Go for stock shares and mutual funds instead of futures contracts, IPOs and options.

Buying on margin

This means buying from brokerage for investing in stocks. You pay interest on loan, and the brokerage uses the positions in your account as their collateral. If the collateral’s value decreases significantly, you have to give more funds to cover the loss. The loan is repaid by liquidating your position, and the firm pays you back the loan first, and then whatever is remaining for you.

Buying on margin gives you more buying power, but there are problems too. You can still lose all you invest. If you are a beginner investor, this is what you should not do.

It pays to invest slowly and rationally

Playing the stock market game is not a sprint. It is an ultramarathon. You do not need to win early on, just the discipline to play the long term game. That’s where all the winners are.

 

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