According to experts, the best way to grow wealth is thru investing. In the past, investing was something that was reserved for the wealthy. However, thanks to the internet and online brokerages, investing is now more accessible than ever.
Anyone can open an account and start buying and selling stocks with just a few clicks. And because there are now numerous apps and websites that offer tips and advice on investing, it’s easier than ever to get started. Best of all, thanks to the power of compound interest, even small investments can grow over time into sizable nest eggs.
According to a new survey, 46% want to learn about investing, while 87% have already started investing. This goes to show that more and more people are getting interested in investing. However, even with all of this information readily available, many people still make costly mistakes when they invest for the first time. Here are four mistakes that new investors should avoid
Not Having a Plan
One mistake too many new investors make is not having a plan before they start investing. A plan will help you determine what you’re investing for and how you will achieve your goals. Without a plan, it’s easy to make careless mistakes that can cost you dearly in the long run.
You need to identify your investing goals. Are you doing this for retirement, to generate income, or to grow your wealth? Once you know what you’re investing for, you can develop a plan to help you achieve your goals.
For instance, if you’re investing for retirement, you need to know how much money you will need to have saved by the time you retire. You also need to know how much risk you’re willing to take and what investment mix (stocks, bonds, cash) will help you achieve your goals.
Let’s say you want to have $1 million saved by the time you retire at age 65. And let’s assume you’re currently 30 years old and have nothing saved. You would need to save about $333 per month to reach your goal. But if you can only afford to save $200 per month, you will need to invest more of your savings in stocks, which have the potential to generate higher returns over the long term.
Investing Based on Emotions
Another mistake newbie investors make is allowing their emotions to guide investment decisions. When the stock market is doing well, it’s easy to get caught up in the hype and start buying stocks without research. Conversely, when the stock market is tanking, it’s easy to panic and sell your holdings. However, these knee-jerk reactions can be catastrophic.
The best way to avoid emotional investing is to have a plan and stick to it. This way, you won’t be tempted to make rash decisions during fluctuating stock markets.
For example, you have a portfolio allocated 60% in stocks and 40% in bonds. If the stock market plunges 10% and you sell all your stocks, you will crystallize your losses. However, if you stick to your plan, you will only sell the 10% of your holdings that are in stocks, which will help you minimize your losses. Keeping your emotions in check and not letting these decide when you should buy and sell investments is crucial to being a successful investor.
Failure to Diversify
Many new investors make the mistake of putting all their investments in one basket. For instance, they may invest all of their money in stocks or all of their money in real estate. While there’s nothing wrong with investing in just one asset class, you must be aware of the risks.
If all of your investments are in one asset class and that asset class goes down in value, your investment portfolio will take a hit. However, if you diversify your investments, you can minimize the risk. For instance, if you invest in a mix of stocks, bonds, and cash, you will be less likely to experience losses if one asset class takes a hit.
The best way to diversify your investments is to invest in a mix of asset classes and investment vehicles. That way, you can minimize your risk and maximize your growth potential.
Thinking Hiring Financial Advisors Are a Waste of Money
Many new investors think they don’t need to hire a financial advisor because they can manage their finances. While it’s true that you can manage your own investments, there are many benefits of working with a professional.
Financial advisors can help you develop a financial plan, choose the right investments and monitor your portfolio. They can also provide valuable guidance when the stock market is volatile.
Hiring a financial advisor can be one of the best investments you make. Hiring the pros to manage your investment portfolio allows you to free up your time to focus on other things. You will have a reliable partner who understands your investment need, puts your preferences first, and works hard to help you attain your long-term goals.
When investing for the first time, there are a few key things to remember to avoid regret. This includes having a plan, diversifying your investment, not letting your emotions make the decisions, and considering the help of pros in managing your investments. With these things in mind, you’ll be on your way to a successful future in investing.