Investors are always looking toh improve their financial strategy hence the quest for the best investment opportunities never cease. But most times Investing is not something that comes easily to everyone overnight. It’s something that you need to work at in order to feel more confident in. The following are some mistakes made by investors.
1. LACK OF INFORMATION/INADEQUATE RESEARCH
Before you invest, you need to dedicate a good amount of time to researching, however it’s important not to get caught in this stage. There are plenty of investment strategies that you can follow, but sticking too close to the book, so to speak, could actually cause more issues than it solves.
When it comes to the stock market, investor confidence is very important.
The best thing you can do to become more confident and rational when you invest your money is to really understand what you’re buying.
Having confidence as an investor helps you to make better decisions when owning a stock over time while allowing you to really understand what is going on at a specific moment in time.
When you start investing, you tend to look at what your money is doing and when there is. Sudden drop in the stock right after you’ve bought it.
You tend to freak out. Fear and other emotions are major killers in the investment trend. But with the right kind of investment information and analysis made, chances of jumping from stock to stock and making loss is reduced.
2. NOT HAVING CLEAR INVESTMENT GOALS
It’s bad enough that the uncertainty of the market cannot be completely eliminated but somehow curbed to reduce risk but investing without a clear goal can be likened to walking without a destination. Anywhere the tides drive, you go.
Everything from the investment plan to the strategies used, funds available for distribution/investment portfolio design, and even the individual securities can be configured with your individual life objectives In mind.
An adage, “If you don’t know where you are going, you will probably end up somewhere else.
Too many investors focus on the short term goals which is totally okay too but for a person managing a large portfolio, a long term investment is advised
3. TRADING TOO MUCH AND TOO OFTEN.
One of the challenges we often face is not when to trade, but rather when not to trade. Over trading is a common trap that many fall in to Knowing when to stay out of the market, and when to take risk “off the table” is a key skill that needs to be learned.
Brokers, dealers and other middlemen all make money from turnover. But over trading is not just bad because of the extra fees – there are other reasons too.
Having insight into the behavioral problems of over trading can give you a big advantage over others.
Trading can be compulsive and even addictive – that’s why we have to be constantly alert to the problem.
Obviously, some strategies, by their nature involve more frequent trading than others. But over trading, means departing from a plan. There can be many causes.
Practical Tips to Avoid Over Trading
I. A plan. Having a trading plan isn’t going to guarantee success. But it is easier to check and correct when things go wrong.
II. If you can’t avoid the compulsion to trade consider having two accounts. Use a secondary, risk account for more speculative trading.
III. Good risk management will ensure losses are cut quickly and the account isn’t overexposed.
IV. Keep a journal. This will help to track progress as well as decisions that went wrong.
V. Plan the trading week in advance. Take note of the economic calendar ahead and determine how any releases may impact your positions. This will help to avoid panicked trading decisions.
4. DANGER OF OVER DIVERSIFYING AND UNDER DIVERSIFYING
Not diversifying a portfolio sufficiently can mean putting your assets at greater risk of loss. At the same time, less diversification means more risk but also the possibility of a better return. We’ve heard the financial experts describe the benefits of portfolio varying, and there’s truth in it. A personal stock portfolio needs to be diversified to help lessen the risk of holding only one stock or only stocks from one particular industry. However, some investors may actually over diversify their investment while aiming to manage risk.
Many investors have the misguided view that risk is reduced with each additional stock in a portfolio, when in fact this couldn’t be farther from the truth. There is evidence that you can only reduce your risk to a certain point beyond which there is no further benefit from diversification
5. USING SOMEONE ELSE’S EXPECTATIONS AND NOT FOCUSING ON REVIEWING INVESTMENTS REGULARLY
Choosing investments is just the beginning of your work as an investor. As time goes by, you’ll need to monitor the performance of these investments to see how they are working together in your portfolio to help you progress toward your goals. Generally speaking, progress means that your portfolio value is steadily increasing, even though one or more of your investments may have lost value.
If your investments are not showing any gains or your account value is dwindling, you’ll have to determine why, and decide on your next move. In addition, because investment markets change all the time, you’ll want to be alert to opportunities to improve your portfolio’s value.
perhaps by changing into a different sector of the economy or allocating part of your portfolio to international investments or getting yourself abreast with the sector your currently faltering in.