1. Failing to have a clear investment plan and goals: While you are investing, make sure you have clear investment goals. Think about investments in a way that is consistent with your goals. Take a moment of your time and plan your Financial goals well. Divide them into three major segments- short-, medium- and long-term goals. For instance- buying a car can be your mid-term goal and planning for your retirement could be your long-term goal. Goals give your right direction, and investment helps to fulfill them.
2. Confusing past returns with future expectations: We have to avoid relying exclusively on historical correlations. Also, your past experience with investment may not be good, however, this doesn’t mean that your future returns may be bad too. Returns depend on Inflation or any other economic changes. The future is likely to be different from your past experiences with investment and this is why you need to plan your investments wisely. “Knowing history helps put things into perspective, but it’s not enough,” explains Bragazza, who uses the Japanese yen as an example. The Japanese currency has, generally, offered protection in times of market stress. However, in 2022 this was not the case because the surge in inflation created large differences in monetary policies.
3. Being impatient: Impatience is a common trait among investors. This causes quite a lot of panic along with financial losses. Patience is a virtue that comes with time, but should be practiced while investing. Don’t compare your losses to others gains and take irrational decisions. Warren Buffet once said, “The stock Market is designed to transfer money from the active to the patient.” Comparison births impatience, which can prove fatal for your money. So, stay cool, and let your investment take time to grow.
4. Not Diversifying: Diversification is a valuable risk management tool, but only when used properly. It is a technique that will help reduce risk in your investment while you allocate it for different categories. It will spread your returns, and reduce the risk. Diversification only adds value when the new asset added has a different risk profile. For example, when diversifying a U.S. stock portfolio, you may want to consider non-related markets like gold, gold stocks, real estate, bonds, commodities, and other asset classes that exhibit low or inverse correlation. So spread your Portfolio, invest in various assets like equities, debts, gold, etc.
6. Making emotional decisions: Investing takes skills and not emotion-based decisions. Various factors affect the decision making process and emotions is fairly responsible for the outcome of these decisions. When we make decisions, we tend to make use of emotional filters to understand the situation and predict the outcome. This could also be called ‘shortcuts to making decisions’. This can cause havoc in our financial space. Moreover, if you have had a good experience with an investment before, we may tend to buy more stock from a particular company or invest there since it gave you good returns, even this is an emotional decision. Central banks have powerful systems for making economic predictions and they are often wrong. Can we do better? I don’t think so. Therefore, take rational decisions based on opportunities and clear direction. Make use of technical and fundamental analysis, and study the stock of the company well. Making emotional decisions is risky when it comes to investment.
7. Failing to review investment regularly: You have worked too hard to create your portfolio over time. You must have invested in various assets and it is important to keep a track of the market conditions and review investments from time to time. Since these are in accordance with your financial goals, reviewing your investments helps you to restore the balance for the long-period. Implementing this habit will bring discipline, which will produce a profit over a period of time.
Here are some other tips to help you avoid common investment mistakes:
Tip#1: Prepare for different market scenarios and accept uncertainty. Be ready for change.
Tip #2: Don’t Forget to Invest in Your Financial Education. You must learn before you can earn. Every investment you make in yourself will pay you dividends for a lifetime.Investing done right is both an art and a science.
Tip #3: Have Fun Investing because wealth isn’t a destination to be reached, but a journey to be enjoyed. It’s a lifelong process that doesn’t end until you’re six feet under ground, so you might as well figure out how to enjoy the experience along the way
Conclusion Start investing today, but make sure to create a plan before and diversify your financial goals into short-term, mid-term and long-term goals. Strike the balance with reviewing your investments from time to time to gain maximum benefits. Making money is more enjoyable than losing it. It’s a lot easier to enjoy the investment process when you learn how to avoid committing some of the most common and expensive investment mistakes.