A Simple Guide To Avoiding Investment Mistakes

They want you to believe you can make a lot of money trading stocks. But when reality kicks in, you’re glad you didn’t lose any. This is because ordinary investors make a lot of investment mistakes over and over again.

First we share some common investment mistakes and then we give you 4 simples steps avoiding these mistakes so you can finally make a lot of money trading stocks.

Mistake 1: You don’t have a goal

For most people their goal with investing is to have a stable income in retirement. This is alright. But what if you’re not investing for retirement? If you’re not investing toward retirement, you need to figure out exactly why you’re investing, how far off that goal is, and how much risk you can tolerate along the way.

Mistake 2: You can’t stand volatility

If you have invested $100.000 and your portfolio drops 4%, you lost $4.000. That’s a lot of money. But when you panic every time your portfolio drops 4%, you have to ask yourself: is investing something for me? If you’re invested in the stock market, the short-term shouldn’t matter at all to you. What matters is the long-term, and over the long-term, the stock market has a fairly steady (although bumpy) upward trend.

Mistake 3: You trade too much

You know those investors who come up with a new idea or a new trend every week? They buy and sell all the time. They’ll react to the news that they hear and move their investments around all the time.

Many brokerages charge you every time you buy or sell an investment, which can add extremely quickly if you’re buying and selling too often. Those transaction fees chew up and swallow your gains quite quickly.

Mistake 4: You take the wrong kind of risk

Too much risk and you’re prone to panic and having a lower-than-expected balance. Too little risk and you’re not going to get as much investment growth as you should. Figure out your purpose for investing and take the risk that’s needed to achieve your goals.

So now we know some common investment mistakes. How can you prevent making the same mistakes over and over again.

Step 1: Learn how to invest

Knowledge is power. The most important thing you can do is learn, learn, learn and never stop learning. Investing actually isn’t that complicated as long as you’re willing to spend the time to learn about it. Read some books, follow good blogs, subscribe yourself to newsletters.

Step 2: Invest yourself

Once you have that knowledge, why would you not manage your own investments? Taking control of things yourself means that you don’t have to pay an investment advisor as a middle man between you and your investments and you also have the ability to freely choose whatever investments work best for you.

Step 3: Keep it simple

The simpler, the better. Stick your retirement savings in a target-date retirement fund. If you’re saving for other goals, come up with a very simple portfolio spread across two or three different asset classes – domestic stocks, international stocks, bonds, cash, real estate, etc. – and just sit on that.

Step 4: Do nothing

Stocks, bonds, funds, … they all rise and fall. That’s the way it goes. Don’t panic in the short-term and guide your investments for the long-term.