The Top 5 Mistakes That Beginning Investors Make

It’s unusual to not make a mistake when you are learning something new, but when you are working with money, the consequences can be serious. There are a few common mistakes that you can avoid in order to help limit your losses and help you become more successful. Here are the top 5 mistakes that beginning investors make.

1. Not Investing

You are rarely too young to invest. The younger you are the more gaining potential you have from decades of stock appreciation. Many people are more focused on how money can benefit them now rather than focusing on the future. Spending money now instead of saving and investing will make it harder for you to be where you want to be when it becomes time for retirement. If you have done the research and feel like you have found a good opportunity for investment it is important to move swiftly before someone else does.

2. Accumulating Credit Card Debt.

Now that you are ready to invest it is important not to rely on credit cards as your main investment partner. It is easy to use your credit card because it feels like free money, but that is a huge mistake. The high interest rates will only put you further into debt. It’s like reverse investing. If you acquire a large amount of debt you will no longer be in the position to invest at all. This costly mistake could end your investing career before it even has the chance to begin.

3. Being Fully Invested in Stocks.

It is common when starting out for novice investors to think it is important to have all of their money in stocks. What is really important is for your portfolio to contain at least 10% cash. If that amount drops towards 5% it is time to sell something unless the market is down so low that the only thing to do is buy. Professional investors know that having cash is important for the opportunity to buy stocks that have been unfairly beaten down.

4. Selling in a Panic

If you jump out in a panic you generally lose. Dumping equities for cash out of fear is a short term fix driven by emotions. On Black Monday in 1987 it took 2 years for markets to recover from the devastating crash. Those who held on instead of selling saw their portfolios eventually bounce back. It may be hard to find the patience to wait but when you cash out, you never recover. For long term growth it is important to hold steady.

5. Not Having a Plan

If you don’t know where you are going it is impossible to get there. It is important to set out your long and short term goals. A well managed plan means it is not susceptible to trend speculations. Make sure your plan covers your current assets and debts, risk-tolerance, and a savings plan.

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