As much as we’d all love to have a perfect portfolio, mistakes are as inevitable in the investment world as they are in everyday life. Indeed, some of your wisest decisions may one day come as a result of the lessons you learned from your past mistakes.
Still, it’s important to understand that some missteps can be catastrophic. To help you avoid these disastrous blunders, we’ve listed the five most common misconceptions that lead to them.
1. Not enlisting professional help
Whether you seek property investment advice or enroll in a stock market investment course, getting professional help is essential if you want to actually make money from your investments.
Many people mistakenly think that if they get an investment advisor, they won’t learn from themselves how to make savvy decisions as the professional will do all the hard work for them. This can be the case if you want it to be. However, a good investment advisor will teach you as much as you want to learn.
2. Mistaking emotions for intuition
Whether you’ve fallen in love with a property, panicked about missing out on a deal, or fallen into a fit of euphoria over promises of epic returns, emotions are a bad omen when it comes to investing.
You never want to allow your feelings to drive your decision-making. It’s essential that you don’t confuse the giddy excitement of a new prospect with some kind of “intuition” or gut feeling you need to follow. Instead, give yourself time to come down off whatever emotional peak you’ve hit, consult your financial advisor, and only sign on the dotted line when you have a clear head.
3. Investing money you can’t afford to lose
The difference between how you’ll trade with money you could afford to lose and how you’ll trade with money you really need is staggering. This key point will also impact how much enjoyment you get out of investing.
Use funds you can’t afford to lose, and you’ll likely find yourself stressed and anxious, with every fluctuation in the market sending you into a tailspin. You will likely find yourself making unwise buying and selling decisions that you otherwise would’ve avoided.
Everyone has a different risk tolerance. However, even if yours is high, you should never put things like your emergency savings or retirement fund into a risky investment.
Light some incense, get the essential oils burning, meditate every morning – whatever it takes to master the art of supreme patience. No matter how promising a company may be, it often takes years for good business practices to translate into substantial paydays for shareholders.
One of many questions you should ask your investment advisor is “what’s a realistic timeline within which I can expect returns?” You’ll also want to go through all the ups and downs you can expect along the way so you can gain an understanding of the fact that all these dips and surges are a natural part of long-term growth. This will save you from making rash decisions.
5. “Timing the Market”
Successfully timing the market is so difficult that even the most educated and experienced investors often get it wrong (with catastrophic consequences). On top of that, it’s been shown that successful investing is more about picking the right asset distribution and sticking with it for the long haul. The timing of when you bought in has little impact if you’re playing the long game (which you should be).
You’ll likely still make some minor blunders in your investment career, but if you avoid the major mistakes above, you’ll be well placed to come out on top.