5 Investment Mistakes To Avoid
New to investing?
If the answer is yes, we’re sure you’re already sitting in eager anticipation, ready to invest your money at the first sign of a promising opportunity. Okay, well maybe not, but if you understand the importance of starting to invest as early as you can, you will (quite understandably) want to get started as soon as you can.
Before you get going though, there are a few things that you should first take into account. Whilst investing can be a fantastic way of achieving your financial goals, it isn’t always a bed of roses, especially when you’re just getting started.
Join us as we run through the top five investment mistakes and how you can avoid them.
1. Not having a plan of action
One of the biggest investment mistakes to be made is not having a general plan of action. Without a clear endgame, you run the risk of investing your money into things that don’t suit your needs for the long term. You need to ask yourself, why are you investing? What are you hoping to get out of it? If you’re not sure why you’re doing it (as with most things) it’s probably a good time to take a step back and have a rethink.
One of the greatest benefits of having a plan is that you are better placed to keep a track of your wins and losses. If you haven’t achieved what you first set out to do, you can look back at your plan and explore the reasons why you may not have hit your target and identify how to get yourself back on track.
2. Not doing your research
Without doing research before investing, you are opening yourself to a whole world of potential trouble. Have you even thought about whether the platform you are investing in is reputable? Are the investments that you’re looking at right for what you need? These are all things that should be considered before a single penny leaves your bank account. It’s your hard-earned money, so make sure that it works equally as hard for you.
With more understanding comes the ability to make smarter decisions; this isn’t any different within the world of investing. The more you know about your needs and how you can fulfil them with investing, the better positioned you’ll be for success. Remember, knowledge is power!
3. Not diversifying your investment portfolio
As a newbie you’d be forgiven for not being aware of the benefits of diversification, but it’s worth being aware of it all the same. Diversification is an investment strategy used by many, including the godfather of investing himself, Warren Buffet. Diversification is simple really. It’s a method of investing in which you spread your money across a number of investments (sometimes with different levels of risk) to try and reduce your overall exposure whilst maximising returns.
This being the case, you know that all the money you’ve invested isn’t relying on the performance of just one investment. If something went wrong with one of your investments 9as will inevitably happen from time to time), you would always have your other investments to fall back on. In short, don’t put all your eggs in one basket.
4. Expecting zero risk (even with diversification)
With investing, nothing is a sure thing. As we’ve already mentioned, diversification is a solid strategy. This, however, doesn’t mean that risk has been completely removed from the equation. It’s not a fool proof plan, and things can still (and sometimes do) go wrong. Unrealistic expectations are one of the biggest causes of loss within the investment industry. People often find themselves blinded by high rates of return, leaving risk (and rational thinking) to play second fiddle. Hope for the best but plan for the worst. Investment mistakes can happen to the best of us.
5. Believing in get rich quick opportunities
Investment isn’t a get rich quick type of game (despite what you may have picked up from The Wolf of Wall Street or what countless seminar programmes on the web may promise). Generally, the greater the potential reward the greater the risk. Other than the promoter of the scheme (usually pictured sitting on a Ferrari in front of a Mc Mansion) do you have verifiable proof that the opportunity has worked for people like you? Probably not.
Investing for your future is something that requires patience, a little bit of know-how how and most of all good luck! Nothing is guaranteed and there’s always a chance that you could lose the money that you invest if you are not careful. If you approach it all with the right attitude and don’t expect unrealistic return, you will gradually start to build a sizeable nest egg for your future.
Capital at risk and rates not guaranteed. Withdrawals may be restricted due to illiquidity. Investments are not covered by the Financial Services Compensation Scheme (FSCS). Please read our full risk warning.