5 Common Mistakes to Avoid When Investing

Mistake 1: Not Vetting an Organization’s Credentials

Often, we rush into making financial investment decisions without prior knowledge of the company. That can be a great undoing. Not vetting the organization’s credentials puts the investor into an avoidable risk that only requires knowledge. While seeking to learn about a company’s credentials, ensure you use credible sources and honest reviews from previous investors. 

In some cases, talking to an expert with experience is all you need to know about the company. You can also ease your mind of any risk when you speak to someone that can provide a financial guideline. Just as every great athlete requires a coach, all potential investors need some financial advisor. More so, the market may get nasty, and you cannot afford to panic.

Understanding the company and the proposed investment is the number one piece of advice you can get from an expert. Warren Buffet advises new investors not to invest in a company without understanding its business models. A simple solution is to diversify your portfolio and choose the stocks that align with your investment goals. 

Mistake 2. Putting all your investment eggs in one basket

Not interviewing multiple organizations and their potential limits your chances of getting a good income from your investments. As the saying goes, “variety is the spice of life.” Therefore, a good investor should make diversification their friend for a healthy investment. By all means, you should avoid putting your entire buy in a single company or sector.

The significant advantage is that when one of your assets is not doing well enough, your overall investment will still be profitable with diversity. A new way to bring variety to your investment is to invest in mutual funds or exchange-traded funds (ETFs). This way, experts have successfully reduced what could have been guesswork. You can now choose the best of the best.

When you decide to invest, you should focus on small and large companies with different capacities. That way, you can further compile all your stock in an overview after shortlisting the best opportunities. However, be careful to allocate nothing more than 10% of your entire investment. You can also make things much easier when you set the proper benchmark. 

Mistake 3. Overlooking potential high costs

Part of the essential information an investor should learn are the high costs of managing your investments. It can be a mistake if you ignore some potential high fees you may encounter while your assets are active. Some of the ordinary expenses in investment management are

• Operation expenses ratio. When investing in ETFs and Mutual funds, you will cater for the annual portfolio management and administrative costs. These costs are a percentage of your overall investment. 
• Trading commission. When stock brokers trade with your investment, they may charge you some amount per trade, especially for ETFs. While some brokers may charge up to 25%, others may not charge at all. 
• Advisor fees. You may encounter two standard advisor fees: the human financial advisor and the automated Robo-advisor. In contrast, a human advisor can charge between 1 and 2%, and a Robo-advisor charges between 0.2 and 0.5%.
• Brokerage account fees. If you use a brokerage account, you may also incur some maintenance fees on your account. As you buy or sell assets and stocks, part of the investments will go as charges. Factor that in as well. 

Mistake 4. Choosing an organization with emotional bias

A professional investor needs to remove any bias or emotional attachment to the course of profitable investment. You cannot afford to let emotions decide where you want to put your money if you want to be successful as an investor. Whether buying or selling, don’t allow your feelings to interfere with your investment choice. 

Ford said emotions and investing are like oil and water that should not mix. How true is that! To prevent investing because of how you feel, you must first recognize how you feel. When you do, isolate it from what you need to do and put the facts on the table. Remind yourself of the fact that how you feel is normal.

It is also customary for the market to have ups and downs. So, you don’t need to look at the market every time. Instead, you can monitor the trend and draw valuable conclusions to help you make better decisions. If you make any wrong decision, you don’t have to feel too bad about it. Instead, learn from it and move on to the next.

Mistake 5. Poor communication of financial goals with the organization

There is no way to underrate the need to set clear investment goals. But even after then, you should be able to inform the advisor or your stock broker. Your investment actions must align with your goals and allow you to do everything right. Though very tempting, investing is not primarily to make more money. Instead, it is to create a base for achieving other goals. 

Money is a tool that meets other needs. So, if you make investments only about the returns and ignore an attribute like stability, it may not turn out well. Top investors base their investment performance on the S&P 500 index, which rarely uses individual actual portfolios. Meanwhile, the index can accurately measure how the market is doing regarding reliability.