With investing becoming more accessible digitally, beginners may be eager to finally try their hand in investing.
With an end-goal to grow money and having your hard-earned cash at stake, it’s easy to fall prey on our emotions and rationale that will cost us poor investing decisions.
Here are 5 common investing mistakes to avoid.
Table of Contents
- Not giving your investments time to grow
- Investing money you’ll need
- Unclear investing goals
- Procrastinating investing
- Relying on advice from social media
1. A common investing mistake is not giving your investments time to grow
A mistake that investors make is to withdraw an investment because their capital did not double within a certain period of time, which is usually days or weeks. Quick growth comes with a lot of risk and unless investors are ready to take on the risk, it may be an unwise decision.
Instead, do this:
When investing, you need to have expectations of reasonable returns over a long-term period. Ideally, you ought to hold investments for as long as you can to maximize your returns.
2. Investing money that you’ll need is one of the worst investments mistakes
If you’re investing because you need money within a short period of time, then perhaps investing isn’t the right course of action for you.
It’s tempting to jump into investing after listening to investing success stories. However, investing is not a get-rich-quick scheme. At the end of the day, it comes with a risk that you ideally should be able to handle.
Instead, do this:
Avoid investing money that you will need within a relatively short period – such as three years. A good way to know whether you’re ready to invest is when you have a cash reserve and ensure that you do not have any payments due (e.g: loans, student debt etc.).
By building a cash reserve, you don’t need to rely on your investments in the case of an emergency or to make a purchase. Investing can be volatile and the last thing you want is to lose the money you were saving.
3. Among the biggest investment mistakes is having unclear investing goals
Making investing all about making more money is a common mistake that even veteran investors make. If your goal in investing is just to make more money, you may be on the wrong track. When we focus on purely getting higher returns, we have a higher tendency to make riskier investments to achieve higher returns.
Instead, do this:
Set tangible goals that you want to achieve; such as putting a down payment on a house or building an emergency fund. Then, use investing as a tool to meet your goals. Your portfolio and investment strategy should align with your goals. With a clear goal, you don’t have to seek out high returns that come with higher risk as long as you can meet your goals with less risky investments.
For example, you have made good progress when saving towards your goal. At this point, you have more to lose to gain. By taking less risky investments, this ensures that your progress isn’t put on the line as well as provides you peace of mind.
4. Procrastinating is an investment mistake to avoid
You may hear about investors losing money from investing and how volatile the markets can be. The fear of losing money is one of the reasons people do not invest, which ironically, is a costly mistake. Keeping all your cash in a bank account means that money loses its purchasing power due to the rising rate of inflation. By not investing, you lose out on the wonderful compounding effect that can happen over the long term.
Instead, do this:
Opt for low-risk investments. While researching for riskier investments that fit your risk profile, save your money into low-risk investments like Money Market Funds such as Versa which offers security and liquidity – allowing you to withdraw your savings and invest anytime. This way, your money still earns returns and you can dip your toes into the world of investing.
Remember: compounding is powerful, so the earlier that money starts working, the higher the returns will be in the long run.
5. A beginner investing mistake is relying on advice from social media
Social media has become a source of information for many – from static Facebook posts to 30 second Tik Tok videos. Here’s the thing: anyone can post online, so there’s no guarantee that you’re being provided with sound advice or that it comes from a qualified expert. This is especially true for financial advice online.
Moreover, social media post formats are limited – whether it is a 1 minute video or an Instagram carousel – and cannot provide you all the information for you to make the right financial decision for yourself. While the advice may be accurate, you will need to take it with a pinch of salt as the advice given is not specific to an individual’s financial needs.
Instead, do this:
Make sure to do your own research when investing and read up on the person giving financial advice on any social media platforms. Don’t take financial advice from those who don’t know your personal financial situation.
