Investment Mistakes: What to Avoid When Investing

Before investing, it is imperative that you have money, don’t take out a loan because you think you have found the next hot stock. There is no guarantee that you will make money investing, unless you put all your money into government securities or a savings account that guarantees a return. Once you have an amount that you can invest, it is up to you to focus on your investment objectives. What is your purpose for investing? A downpayment on a car or house, college tuition, or retirement? Below are some common investing mistakes beginners and un-educated investors make.

Lack of diversification

There is an old saying: Don’t put all of your eggs in one basket. Diversify, diversify, diversify! When starting out, investors try to put their money in only a few uncertain stocks, rather than spreading them out amoung several stocks, bonds, and mutual funds. By not following this, you are taking a greater risk than if you diversify. Spread your investment money around.

Look for instant results

Investments take time to grow, particularly if you are invested in the stock market. Too many investors make the mistake of getting easily frustrated and selling quickly. While there are successful day traders, it is not recommended for most people and not the way to build an investment portfolio.

Expecting Results

Yesterday's hottest stocks or funds are not necessarily today's. Research investment vehicles and look for those that you anticipate will do well based on past results and indicators of future performance.

Asset Allocation

Buying a stock, bond, fund or other investment before determining your asset allocation is a very common mistake. Too many people put the cart before the horse. The first step toward successful investing should be determining how much you plan to invest in each asset class (i.e., bonds, stocks) to meet your goals.

Level of risk

Essentially, you have to consider how much money you can comfortably afford to lose without losing too much sleep. Investors frequently make the mistake of jumping into high risk investments for which they were not prepared.

Not doing your homework

No matter what type of investment instrument you are considering, it is important to do the research. There are numerous web sites and publications in which to research and compare companies.

Deviating from your investment objective

One of the biggest mistakes investors make is not sticking to their original investment strategy. Do not let yourself get diverted by a hot tip, a sudden trend or a sudden down market.

Confused By an Investment

We have all heard stories of individuals who have been talked into investing in futures, options,or other investments that they did not fully understand. Make sure you have an understanding of the type of investment and you are comfortable with the risks involved before proceeding.

Believing advice of a broker

If brokers knew all of the best ways to invest, they would not need to work. They would have made enough money to retire. Therefore, you should still do some research even once recommendations are given by your broker. Work only with a broker whom you feel you can trust implicitly.

Track the Performance of your Investments

Many people pay attention to their investments for a while and then make the mistake of getting sidetracked or losing interest. You should keep track of your investments on a regular basis.

Investors who recognize and avoid these mistakes and any others they might make, they can give themselves a great advantage in achieving their investment goals. If you take the time to carefully study the market, and learn from other’s mistakes as well as your own, you will be able to become a successful investor.