8 Common Investing Mistakes to Avoid

No matter what choices you make, there are no guarantees in investing. Everyone’s goals, time horizon, and risk tolerance affect your choices. However, mistakes can be avoided. In this article, we will go over eight common investing mistakes to avoid.

1. Not Understanding Your Investments

The best thing you can do is have a basic understanding of the investments in your portfolio. This will help you make sure they are working for you. Not understanding what you are invested in can lead to you making trading mistakes.

2. You Fall in Love with a Company

When choosing stocks to invest in you may find a company you really like. But it is important to remember this stock is an investment. You need to make sure the stock is still performing for you, and you are not just keeping the stock for sentimental reasons. If it is no longer working with your portfolio, you may need to part with the stock.

3. Not Showing Patience

It has been proven that a slow and steady approach will yield better results for you in the long term. You need to have patience and give time for your investments to perform for you.

4. Excessive Investment Turnover

Turnover is constantly buying and selling investments in an effort to make a profit. Transaction costs will add up and eat away at your profits. You also need to take into account the effects of short-term capital gains tax rates.

5. Attempting to Time the Market

Timing the market involves switching asset classes based on predictive methods. It is extremely difficult to pull off. Typically, you see gains in your portfolio due to timing, not the adjustment of asset allocation.

6. Waiting to Break Even

Many people want to wait to sell an underperforming stock until it returns to the price, they originally purchased it at. However, this is risky as the stocks’ value may continue to slide until it’s worthless. You may have to cut your losses and reinvest your funds into a better performing investment.

7. Failing to Diversify

Diversification is the process of creating a portfolio that is made up of several different asset classes and businesses. Doing so helps reduce your risk. This is the case because if one sector underperforms it is hopeful that the other sectors will make up for the losses.

8. Letting Your Emotions Rule

Fear makes people make rash decisions that they will later regret and will negatively affect their portfolio. You need to focus on the bigger picture and remember that the market is going to change over time, sometimes wildly. You need to remember to keep calm and ride out rough market periods. Usually overtime your portfolio will recover itself instead of quickly selling a stock that is underperforming.

You Can Avoid Common Investing Mistakes

With proper planning you can avoid common investing mistakes. It also helps to get the advice of an investment planner who can guide you through the common pitfalls.

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