7 Investing mistakes that costs you a fortune!
Investing is great! because you are doing it for your future but it is not granted that you will receive the so-called anticipated return on your investment because the stock market is an uncertain place. To a beginner, myths could appear as facts and the other way round so, they hold you back. It is essential to know the difference between them and learn from the mistakes made.
Investing in the stock market is just like gambling.
gambling is totally different from investing. While gambling you bet on something thing, an uncertain outcome with the hopes of making a profit. for a beginner, both might appear similar but actually not. Buying a stock makes you a partial owner of that company and the performance of the company and many other factors determine your profits. Buying some random stocks without researching but based on speculations in gambling. but are day traders gamblers? nope! they do technical analysis of a stock before buying one.
Investing is only for the rich.
That's false! You actually don't need a lot of money and you need not be rich to get started.
The Internet had made investing in the stock market easier and more accessible to everyone never like before, there are discount brokerages that allow investors to access the market with minimal investment.
Small mutual fund fees don't hurt profits.
when you decide to invest in mutual funds, that 2% or 1.5% fees(expense ratio) for actively managing your funds might not seem like a big deal and some believe that those fees don't really matter, but that's not true they affect your returns in the long term and this fee is charged every year regardless of whether the fund makes money or loses money. A mutual fund with a high expense ratio has produced fewer returns in the long term than a fund with a low expense ratio.
Not diversifying your portfolio
Investing a single stock or a single asset class is risky especially when the business doesn't perform well or during the times of crisis, investment losses it's value and you will be that man in the picture.
"Don't put all your eggs in one basket "
Individual stock is highly volatile. diversification reduces risk.
diversification is investing in a different asset class such as stocks, bonds, real estate, and ETFs based on your risk tolerance and financial goals. You can further diversify your portfolio by selecting a mix of securities within each asset class. For example, there are different types of Securities classified by geographical locations, industry, and sectors. It reduces the unsystematic risk and overall volatility of the portfolio.
To be a successful investor, you need to rebalance your portfolio at regular intervals. This means making sure that your asset allocations are still in the right ratio. From time to time, a particular part of one of your buckets may grow significantly and disproportionally to the rest of your portfolio and throw you out of balance.
For example,if you invest 60% of your money in stock and 40% in bond, Six months later,when you check your portfolio you will find that your investments are no longer in the same ratio and that’s exactly why you should rebalance.
Buying those hot stocks that are in the news is not a good investment strategy, they might be overvalued, investing in companies you know and like by assuming that they will perform well is a big mistake and that's just speculating but sometimes it can be profitable though, out of luck. An investor is focused on the long-term gains, they make use of compounding and a trader is focused short-term gains. Analysis and research is an essential part of the investment process. It involves evaluating different assets, sectors, and patterns or trends that occur in the market. Investors use fundamental and technical analysis to choose their investment strategies and to build their portfolios. By using fundamental analysis, investors analyze financial ratios and determine how well the business is performing currently and in the future. Technical analysis, on the other hand, is used to identify great trading opportunities based on stock price and market sentiment.
Not setting up an emergency fund.
Emergencies can happen in the blink of an eye and It is important to save for the rainy day before investing or else you will be forced to take unnecessary debts. A rainy day fund is money that is set aside for the uncertain times such as job loss, unexpected expenses, and for times of crisis like the recession. Ideally, a rainy day fund should have enough money to cover at least three to six months of your living expenses. start by calculating your living expenses and set aside a part of the income to the rainy day fund regularly.