investment mistakes to avoid
Speculating instead of Investing: A young investor starts his/her investing life with an adventure. But they should always remember the fact that the amount of risk he/she can take while investing is entirely directly proportional to their wealth and their age. Investing world mostly works on risk-taking. So a young investor can seek out the bigger amount of returns if they have the guts to take bigger risks. This is very logical and wise step to do because if a young investor loses money, he/she has more than enough time to recover the lost wealth through income generation.
Procrastinating: The young investors always have a tendency of putting off or delaying an action to a later time. In the money market, you always have to fast and quick on your money decisions, because the ups and downs of the market are very spontaneous. Thus, procrastination is never good and can be detrimental at times. Good investment ideas are always hard to find. After doing a proper research, if you acquired a good investment idea, then it is very important to act upon it quickly, that is before the rest of the market takes a note to this same idea and beat you to it.
Using Too Much Leverage: Leverage has its return and its drawback. The young age of investors is the only time when he/she can add leverage to their portfolios. As discussed earlier, young investors have better ability to recover from the money-losing errors. However, unlike speculation, leverage can also shatter even a good portfolio.
Not Asking Enough Questions: If a stock price is constantly falling, a young investor might expect it to bounce right back, but which is not likely the case most of the time. While investing, one of the most important factors is asking questions, a lot of questions. If any asset or stock is trading at half of an investor’s perceived value, then these are definitely a reason, and it is your responsibility to ask – “what, why and how?”, and find the correct reason. Young investors who have not experienced the drawbacks of investing can be particularly liable of making decisions without locating all the relevant information.
Not Investing: As discussed earlier, an investor have greater ability to seek a higher return by taking the higher risk when it comes to a long-term time horizon. Young investors have their longest time horizons, and thus a high tolerance for risk is applicable. Young investors also tend to be less experienced with handling money. As a consequence, they are often tempted to focus on how their money can benefit them at present, without focusing on any profitable long-term goals, like retirement. Spending and wasting money now instead of saving and investing, can create bad habits and contribute to a lack of savings and retirement funds.