Mistakes to avoid when investing
Not having clear objectives when investing
You need to have clear goals when investing as investing needs to be done with a purpose or objectives in mind. Investing to make money should not always be the goal but instead should be used as a tool for meeting your goals. Investing is not always about returns. Passive income through distributions longer term is another incentive to continue or even commence investing. Chasing higher returns is also correlated with higher risk. Consistent longer-term investing can minimise this risk over a period. Less risky investments are also good vehicles for consistent income. The design of your portfolio and performance should be aligned to meet your goals and objectives.
Investing money you will need to access short term
Jumping into investment markets before building themselves a ‘buffer’ or ‘emergency fund’ is a mistake many people make when investing. Before investing, you must always feel like you are on top of, or in control of your money/savings. Cash reserves are necessary, so you do not need to sell or access the funds you have invested during an emergency or if an unforeseen situation arises in your life. The stock market can be volatile, and you’d hate to lose the money you were investing by selling at the incorrect time or selling too soon. Money that is needed within a short period should not be invested in investment markets.
Not giving investments time to grow
Time is important when it comes to investing. Ideally, you should hold investments for as long as you can to maximize your returns as investing is something you do with the expectation of reasonable returns over a longer period.
Chasing trends is a common mistake investors make as investors follow the next hot stock not knowing why they are choosing a particular investment. Doing your due diligence before putting your money in the market is important. An alternate approach would be to passively invest through index funds and watch your portfolio grow over time. By doing so you take on less risk than when you buy an individual company’s stock.
Following non-credible advice
There is a lot of misinformation on investing and finances in general on social media. The overall guidance from experts is simple; don’t take investment advice from those who don’t know your personal financial situation. You may feel pressured by someone on social media to start investing in a certain company, but they would have absolutely no idea about your personal situation. If possible, make sure to do your own research when investing and read up on the person giving financial advice on TikTok or another social-media platform to determine the credibility of the source as there are many so called ‘finance guru’s’ around these days.
Watching the markets daily
While it’s normal to keep an eye on what’s happening in the economy, it’s easy to get swept up in the emotional rollercoaster that comes along with it. The markets are constantly moving and trying to follow in real-time can lead you to obsessively checking in or changing your investments when you are actually better off leaving them as is for the longer term by simply being patient. You need a strategy when investing or if not you are likely to perform worse than if you just stuck with your original strategy and not look at your portfolio too frequently as it is simply not always necessary if you have a strategy in place. Investing should ideally be done with the intention of holding it for a longer period to minimise the volatility in the market that your portfolio will inevitably experience.