At the best of times, investing your money is a risky business, and that is when you have thought about and researched things very carefully. However, if you find yourself making one or more of the foolish mistakes below you could be heading for some big financial trouble. Read on to find out more.
Putting all of you eggs in one basket.
A mortal sin in the investment world is putting all of your eggs in one basket. What this means is that you don’t sufficiently diversify your portfolio. The problem with this is that if one market crashes, which they often do, all of your investment will go along with it. However, if you diversify your investments or to put it another way, spread your bets, you have some insurance if one drops off the face of the earth.
Yes, just like in gambling, spreading your bets may mean that you see a less extreme return when things are going well, but it will also mean that you still have some investments of value if things go wrong.
Of course, it’s also crucial to remember that diversifying your portfolio also allows you to vary the risk level of the different investments you make. Therefore, you can quite easily have some higher risk projects where you aim for a shorter term return, and some longer-term ones to counterbalance this.
Listening to your heart.
When it comes to choosing the person we want to marry, listening to our heart is a good thing. However, allowing our emotions too much say in our investment choices can be devastating. After all, emotional reasoning is a well known cognitive distortion, where we are reminded that just because we feel a certain way about something, it doesn’t necessarily mean that it’s true.
In fact, listening to your heart too much when investing can really cause you an issue because it encourages overly risky choices and bad reactions when stock values do fall, and you lose money. Therefore it is much more sensible to use a logical system to decide what, when, and where to invest rather than running on your gut (or heart) instincts.
Not understanding your market.
The thing about investing is that it’s a huge umbrella that covers the financial movements and value of certain companies and assets. The issue here is that it is hugely complex and until relatively recently has been quite an elitist area. This means that nonprofessional investors that aren’t working from Wall Street or another of the investing hubs in the world are at a distinct disadvantage for two reasons.
Firstly, understanding how the market works with only limited experience can cause you to make costly newbie mistakes. Secondly, not all assets and markets are easily comparable or work on the same system, so each individual one often needs a different strategic approach.
What this means is that you need to spend the time researching the particular market you are interested in, not only to understand how investments are bought and sold, but also how the market is performing over the long term, and even regarding individual businesses or assets within such a market.
Luckily, because of the egalitarian access to information on the internet, it is possible to pick a specific market like crude inventories and find out these things. Something that can help you avoid costly mistakes when investing.
Listening to too specific advice.
There is an old adage that suggests we need to beware of strangers bearing gifts, and this is undoubtedly good advice that we can apply to our investment strategy.
In particular, be aware of specific stock recommendations and picks. Why? Well, no one can say for definite what is a sure thing, and those that are trying may be working a pump and dump scheme, something that would leave you seriously out of pocket.
Your stocks past is not its future.
Lastly, a truly foolish mistake that any savvy investor needs to avoid is to remember that just because your investment has done well in the past, doesn’t necessarily mean that it will end up doing well in the future.
Just because your investment has done well in the past, doesn’t mean you can predict this for the future.
After all, the financial world is a lot more complicated than that. What this means is that you need to assess factors such as the global financial economy, the demand for your assets, the state of the specific assets’ market, and how long you can hold onto it, before you choose to move forward.
Otherwise, you could end up making a foolish mistake and holding onto something out of loyalty that won’t make you any money and could, in fact, cost you some.