“Successful investing,” Warren Buffett has said, “takes time, discipline and patience.”
There are many things that can go wrong when you are investing for the first time. It is important for you to get acquainted with how things work, and especially the most common mistakes people tend to make when investing. Learning from past mistakes can lead you to the correct path.
1. Not having a plan
In order to achieve your goal, the first step is to explicitly map out what your goal is! Are you planning to save for your retirement or are you saving for a house in 5 years? In order to select the investment that fit your goal, you have to know what are trying to accomplish. Without a goal in mind, it is hard to create an investment strategy that will get you somewhere.
2. Not Doing Proper Research
30 years ago, you only could get a limited amount of stock data available on newspaper. Now, it’s the opposite. With just one click you can get a vast amount of information about a particular stock. Doing an exhaustive and effective market research is one of the most vital components in determining which stock to buy or sell. Doing the dirty work, looking and uncovering essential information about a company, is not hard at all. You are able to find a lot of information on the internet in a matter of seconds. Yet, with that huge amount of information available it is easy to get lost, be overwhelmed and have no idea where to start. That’s why you should know exactly what to look for, in order to make the best decision. In my previous article, I explain the best way to do a stock market research “HOW TO DO STOCK MARKET RESEARCH“.
3. Not Diversifying
Investors have to take into account that diversification is an effective way to reduce risk. For instance, bonds and stocks usually move in opposite directions, that’s why including bonds in a portfolio is not to increase returns but to reduce risk. Investors should aim to find a medium between risks and return.
Being patient is definitely one of the most difficult skills to learn. Sometimes the best thing investors should do is NOTHING. That’s right: don’t let emotions take over and give your investment the opportunity to grow. Try to focus on long-term success and remember that market volatility is just part of the cycle. Stocks by nature are volatile so don’t expect a smooth ride and most importantly don’t panic or you will be drawn to sell prematurely and lose money in the market.
5. Diving into the stock market without any experience
Investing could be nerve-racking for the first time. Of course is not a good idea to start practicing with $5,000 of your real dollars. Instead, my biggest advice would be to practice using an online simulator. Why? Some of them are completely free and offer a realistic version of an investment portfolio. You will be using virtual money so there is no risk involved. One of my favorite sites is HowTheMarketWorks: their simulators performs like a real brokerage account. Click here to check them out!