Do you know what investment mistakes to avoid? Try not to take too many risks and diversify your portfolio. We often portray ourselves as rational individuals and investors. We try not to make impulsive decisions, but well-thought and calculated moves. This strategy applies in the real world and with our investments. I would be a hypocrite if I said I never made any mistakes and followed the best investment guidelines. Today, I will elaborate on three of the most avoidable mistakes I have seen during my time as a financial advisor and as an investor. They are a solid base for beginners and experts to stay on the right track. These tips will not be technical, but more so educational. Let’s begin.
Investment Mistakes to Avoid: Taking Risks
It was during a stable period of time. I met many clients who were in their 20s and 30s who were very risk-averse.
Those closer to their retirement or getting ready for a major purchase should be in that risk category. The rest should take as much risk as possible with their funds.
Financial institutions were and still are very big on mutual funds. The majority of my customers found themselves with a balanced portfolio. This portfolio offers very little risk. In my opinion, that is a mistake. Young professionals that choose to invest in funds should opt for the most aggressive option possible.
As long as their income is guaranteed and there is enough money saved up, it is a wise decision. For those who seek riskier investments and want to know what investment mistakes to avoid, the next sections are for you.
How to Take More Risks?
Are you looking for investment mistakes to avoid? For those who don’t have the time or will to conduct any investment research, mutual funds offered by financial institutions are the way to go.
Don’t expect crazy returns or losses. For more adventurous investors, let’s turn to ETFs, stocks and alternative investments.
Forget bonds and mutual funds, money is made (and lost) on the stock market and with options. However, it is imperative to have a minimum of understanding before going on a shopping spree.
We offer courses to help you deepen your understanding. There is also a multitude of information and tools online. Use them.
Stocks, options and alternative investments such as private equity, commodities and currencies are much riskier than mutual funds, savings accounts and bonds. Investors can gain and lose much more with these investments. In the next section, we will take a more in-depth look into these investment vehicles.
Another tip on investment mistakes to avoid is don’t put all your eggs in the same basket. Haven’t you heard this expression often enough? In most cases, funds are well-diversified, unless they are industry-specific.
However, stocks aren’t. Allocating your entire portfolio to a single stock or sector may be a good idea for a few days, but it isn’t a good long-term strategy.
How to effectively diversify? A strategic mix according to your strategy between the following investment vehicles is recommendable.
ETFs: ETFs offer a good mix between sectors and small to large-cap stocks. They also pay dividends and charge a much smaller fee than mutual funds. They are easy to purchase and understand. ETFs are more and more used over mutual funds.
Commodities: Commodities include metals, energy, livestock and agricultural products. Investors can bet on the future prices of these items as well as invest in the companies that produce them. As an example, there are plenty of public companies investing in uranium, lithium, meat production, oil, gas and other commodities.
Options: Options also allow investors to speculate on the future price of a stock. Many investors made a big fortune thanks to this tool. Others have lost their fortune as well. Head to r/WallStreetBets for tons of examples.
Currencies: At the beginning of March 2022, the Russian Ruble was at its lowest point ever. Since, it doubled and is almost at a 5-year high. Currency trading is always done in pairs. One currency is exchanged for another. Let’s take the RUB to USD example. The current exchange rate doubled since March 2022. Many investors who predicted the rise of the ruble doubled their initial investment.
Private Equity: The majority of private equity investments are only available to accredited investors. You may qualify. If you do, a whole new investment world can be reached.
It isn’t as simple as buying an investment and forgetting about it. There is a strategy involved. Many tools are at our disposal. Charts and indicators are used by some of the most successful investors.
We can also help you with these tools. Some investors try to predict when to enter the market based on luck. How does that work out?
Timing the Market
One of the main tools I used as a financial advisor is dollar-cost averaging. How does this help you know what investment mistakes to avoid?
I asked my clients how much they were comfortable setting aside every paycheck, and putting that money into their investments, regardless of the price.
This strategy is very successful for mutual funds and ETFs, but not as much for stocks. Oftentimes, investors attempt to time their stock purchases. They look for the lowest price possible and buy the stock Very few investors are successful with this strategy.
Even with a complete understanding of the market, indicators and various tools, it is very difficult to predict externalities and outside factors that might drive the stock price even lower.
Instead, it is more advisable to find a balance between dollar-cost averaging and timing the market. Investors should perform sufficient due diligence to find an appropriate entry point. When the price is below, it is a good opportunity to buy shares.
Investment Mistakes to Avoid Conclusion
To conclude on investment mistakes to avoid, the world of investments is complex to navigate. Thankfully, we have many tools at our disposal to make out lives much easier.
Such tools are indicators, charts, news releases and various communities that are ready to guide us through this journey. Furthermore, there are certain mistakes investors can avoid to be more successful and to avoid unnecessary losses.
Taking risks is almost unavoidable in this world. When investing with funds such as ETFs and mutual funds, young investors should opt for riskier ones. They can also diversify their holdings and average their purchases over time. All these tools and more can help investors of all skill-level become successful.
If you want to learn more about how you can profit from the stock market, head on over to our free library of educational courses. We have something for everyone, including trading options for those with small accounts.