Introduction: What is investing?
Most people make investment mistakes because they fail to understand what investing is. Investing can be defined as the practice of putting money into activities that generate more money. The main purpose of investing is to make profits and/or generate material results. You can put your money in financial schemes, buy shares, property, etc. Such activities equate to investing.
Investing is crucial because it’s the best way of ensuring your money works for you. To become financially independent, you need to find activities i.e. investments that generate money for you. In fact, it’s very hard to become rich without investing your money. Many people understand this fact so, why is it so hard to become rich? Well, here are the top investment mistakes most people make.
1. Following investment trends blindly
This has to be the most common investment mistake you must avoid. Many people tend to copy other people’s investments without doing their own research. This mistake is catastrophic. Although picking suitable investments is a daunting task, you should never copy someone else’s investments. Investigate and find out if the investment in question is viable according to your own research. Investment trends may appear lucrative at first glance. However, you must do your own research before committing your hard earned money. Your success as an investor is highly dependent on the accuracy of the information you use to make investment decisions so, research thoroughly before following investment trends.
2. Poor goal setting/planning
Most people also tend to set poor investment goals or lack investment goals altogether which is detrimental when it comes to measuring investment success. For instance, you should know why you are investing, how long you want to invest, the risk you should take, when to take profits, etc. Goal setting is very important when investing since investments undergo cycles. The stock market for instance rises and falls with time. Without clear goals/plans, you can’t be able to know when you should liquidate your stock holdings. In such a case, you might return all your gains to the market. In a nutshell, the investment you choose must serve your purpose for investing, and the best way of ensuring your investment purpose is served is to have clear goals.
3. Focusing on current performance of investments
This is another top investment mistake you must avoid. Most people fail as investors because they focus on top performing investments. Although it is possible to make money by investing in something that is currently doing well i.e. stocks, it’s not always a good idea. The best/highest returns are enjoyed by investors who identify lucrative investments before everyone else. In simpler terms, most people fail in investing because they focus on the present instead of the future. You must learn to identify investments long before everyone else otherwise you will enjoy average gains like everyone else. As a result, the future prospects of any investment are more important than the current performance.
4. Investing in the short-term
You should also avoid short-term investment approaches since such approaches never offer significant gains. Investments hardly offer significant returns in a year or two. Unfortunately, most people are in a hurry to reap returns. The importance of practicing patience when investing can’t be overlooked. If you do your research, set clear investment goals and focus on the future, you shouldn’t have a problem picking great investments that are bound to reap you good returns in the future. In fact, you won’t be required to do much once you make lucrative investments. You just need to wait for years to reap big. Think long-term i.e. 5-20+ years.
5. Poor risk management
Many investors also fail because of poor risk management. You should never take too much risk or uncalculated risk when investing. For instance, you shouldn’t invest all your money in one investment since there’s always a risk factor in investing. To avoid being destroyed financially when your investment fails, spread risk by investing in different things as opposed to one thing. You should, however, avoid diversifying too much since such a practice tends to dilute returns. If you are investing using a loan, makes sure you can afford to pay for the loan comfortably whether your investment succeeds or not.