Making mistakes is part of what makes us human. However, lacking cautiousness and repeating the same errors leads to higher risks in the world of finance and investment. One can make better investment decisions by being aware of these 5 common missteps.
1. Not having a clear plan
Research plays an important role when deciding to invest. Although sometimes the lack of an in-depth financial knowledge might seem the right factor to blame, the most impactful mistakes happen when a plan of investment is missing.
Solution: Create a personal investment plan following these guidelines:
- goal and objectives – Start by deciding what you wish to accomplish.
- risks – Whether we are talking about inflation or volatility, ask yourself risks are relevant for your portfolio.
- asset allocation – Find the balance between risks and rewards by adjusting the investment portfolio according to risk tolerance, goals and investment time frame.
- diversification – Reduce risk by allocating money for different investment opportunities.
2. Forgetting about the ever-changing nature of trends
Business trends change at a very fast pace. The future is uncertain and just because a stock is performing well at the moment, it doesn’t mean we could except the same result in the future.
Solution: Take the time to re-analyse your position and have a constant overview of what is currently trending. Also, in order to avoid poor decisions based on spontaneous actions, it would be preferable to commit to portfolio allocations and continuously re-balance.
3. Blindly trusting your intuition
The brain is used to taking decisions based on information that validates our existing thoughts because it reinforces the idea that we might be right. Moreover, taking impulsive decisions based on our gut feelings is amplified nowadays by the presence of online tools such as Google and Facebook that filter results based on previous searches.
Solution: Seek professional advice if you are not sure about an investment opportunity and be open to opinions that contradict your own. The most successful investors constantly ask for qualified opinions.
4. Chasing performance at all costs
In order to achieve high returns, investors often take high risks. Many select asset classes, strategies and investment opportunities based solely on the high return on investment that they imagine they will achieve. This method is often too dangerous and leads to poor investment decisions.
Solution: The best way to accomplish successful and sustainable returns is to have a long-term strategy. Take time to analyse the risks, the returns and seek professional advice if you require more information. Always keep in mind that investing in any business involves risks, including illiquidity, lack of dividends, loss of investment and dilution, and it is best to be done only as part of a diversified portfolio.
5. Being too scared to invest
Using your knowledge and experience to filter opportunities is mandatory when deciding to put your money into a business. Investing in what you do not know is not ideal, but this does not mean it should be totally avoided. Understanding risks is different from avoiding them at all costs.
Solution: Know your strengths and weaknesses before taking any financial decision. Make responsible choices and try going for opportunities that suit your interests and experience.
Find yourself a step closer to meeting your investment goals by acknowledging these 5 common mistakes. These simple solutions will make it easier to achieve sustainable long-term financial success.
The above references an opinion and is for educational information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice. Investing in any business involves risks, including illiquidity, lack of dividends, loss of investment and dilution, and it should be done only as part of a diversified portfolio. Please click here to read the full risk warning.