Investing is definitely something that most people are interested in but one thing stops them, and that is fear. You may have heard of others who made the wrong decisions, jumped on the wrong bandwagon and ended up losing a lot of precious time & money. However, it’s always wise to learn from other people’s experiences and learn from them. Hence, it’s important for you to know the 5 biggest mistakes that investors make in order to prevent yourself from making the same ones.
#1 Letting Other People Manage Their Money
More often than not, some investors think that they do not have a finance degree and so they can’t make good investing decisions. And so, they would rather let someone else “more knowledgeable” manage their money.
They could also think of investing as a quick and easy way of making more money with money. And thus, they like to take the easy way out and trust financial advisors or brokers to manage their money & investments.
The thing is, these investors don’t realize that no one is MORE concerned about their money than themselves and they should not let other people, who may not be qualified or experienced enough to invest and manage their money. The fact that we hear many horror stories of investments gone wrong throughout the decades; it shows that people need to play an active role in managing and investing their own money. Investing is not just about having technical knowledge but rather, it’s about knowing your own investment goals, understanding the things you invest in and knowing how to manage your own risks.
#2 Failing to Fully Understand What They Are Investing In
This is a common reason why investors often make wrong investment decisions. They fail to understand the value of what they are investing and the possible risks involved in their investment.
There are many investment opportunities being introduced every single day and different investments will entail different risks and returns. Hence, it is important for investors to understand the mechanics behind these investments before signing on the dotted line.
#3 Not Investing Internationally
Similar to the saying, “Do not pick all your eggs in one basket”, it’s actually wise to invest internationally in today’s global economy. This is because the world economy is expanding, opening up many doors of opportunities. In fact, there are many great investment opportunities available outside of Singapore as neighbouring ASEAN countries such as Malaysia, Thailand, Vietnam etc. emerge as first world countries entering the global economy.
The recommended investment strategy is to invest not more than 10 – 15% of a portfolio internationally. Hence, do consider allocating part of your portfolio for investing long term in emerging countries.
#4 Always Focused on Finding The Next Hot Opportunity (That Could Turn Out to Be An Over-Hyped Investment)
Many investors are bought into investment opportunities by the many big promises they are made. This applies to almost every domain of investing – stocks, commodities, property etc. and very often, investing that should be rational turns emotional as we buy into the excitement and hype of getting a “bargain” or lucrative deal.
The thing is, investors buy into the wrong investments after listening to too many “experts” or even other investors who say what they think you have to have.
Have you met other people who tell you what they think you need to invest in?
You need to be on HIGH alert when you are exposed to over-hyped investment opportunities or when other people are pushing investment products into your hands. What you need to do is to remember Mistake #2 and realize you need to fully understand what you are investing in and you have assess the value, risks and returns involved. If you are comfortable with the figures, then by all means, invest.
#5 Not Setting Investment Targets and Goals
Investment targets and goals help to keep investors at bay of making poor judgements caused by emotions like fear and anxiety, or risking their investments due to greed. The thing is, when investors fail to set targets & goals, it causes them to be influenced by the market and they end up making emotional decisions rather than rational ones, resulting in large losses and small gains.
Just imagine that your investment is valued at a certain price. And when its price starts to rise, you may get greedy and wish to hold onto the investment to fetch a higher price. But when the price starts to fall and falls below your purchase price, you may become anxious to sell it immediately to cut losses. As such your decisions are affected by your emotions and no longer by rationale motivation.
No one said that investing was easy, but we certainly can prevent ourselves from falling through the pitfalls by avoiding making these common mistakes that most investors make. The reason for investing is to preserve your capital and increase your profitable investments. Hence, it is important to be clear of your investment goals and be cautious about investment opportunities introduced by others that have a lot of hype and big promises thrown in. Be aware of what you are investing and invest prudently and in opportunities that are of value, with minimal risks and high returns.