Five Investment Follies to Avoid at All Costs
Making mistakes is a part of life and one that you should accept with grace. However that being said, it is always better to learn from other people’s mistakes vicariously rather than make them yourself. Hiring a professional equity or commodity brokerage firm or wealth management company is the best option for people with no finance knowledge.
But having said that, it is important to be aware of where your money is and what it is making for you.
Here are some common investment follies that you should avoid making.
Investing Without Research
There may be some investments that appeal to you and may give you an emotional high. Take for instance the chance to invest in a startup company that a friend of a friend is setting up. You feel good about giving someone a break and the potential of gaining good stock when the company makes it big. However investing just to feel good is a terrible idea. Before you consider investing in the startup you must take a look at the skills the company owner is bringing to the table, the business model and annual goals matter as well. If it still looks like a sound investment by all means go ahead.
Clinging to Past Performance Results
There are times when an investment pays off so well that you get attached to it. At a later stage even when the money stops coming in, you think about that past high performance and let it ride in your portfolio. Being attached to your investments is a very common newbie mistake. You should know when to cash in and move on to another investment.
Not Cutting Your Losses
At times an investment that has been well researched and promises good performance in the future based on an excellent past track record, may drop to the bottom for an unseen reason. Here an investor may hold on to the investment in the hope of waiting for it to rise to the price that they paid into it. Even if they know that no profits may be made, they wait for the prices to raise equal to what they invested. Once you break even you will consider selling out. This is a very bad idea as if the investment is already in trouble you may lose more money in the near future. It’s a better bet to cut your losses and get out of this trap.
Expecting Instant Results and Gains
Financial investments made with a long term goal in mind will have to be investments that deserve your patience. If you expect to get rich quick by investing today and getting superlative returns on the investment tomorrow, that is not going to happen. If you are looking for instant gratification your needs will be better met by the Fast Moving Customer Goods industry but not by the Finance industry.
Not Claiming Your Profits
Any investment will see its share of ups and downs. Just as you must know when to cut your losses with a bad investment, you should also know when to encash your profits with a good investment. If substantial amount of money has been made, skim the profits and invest them elsewhere while you let the main principal amount ride. By not claiming your profits when they accumulate you are risking them all over again.