Let’s go over some common mistakes people make when investing, and most of them come from personal experience since I started investing in the stock market in 2018. This article is more focused on long-term investors, not day traders, swing traders, or options traders, since I can’t speak from experience in that area of investing.
The form of investing this article focuses on specifically is stock market investing. Although, there could be helpful takeaways for any form of investment like real estate, commodities, and more.
Investing can be a great way to grow money and find financial independence, but it doesn’t come overnight. Diversification, staying positive, looking for opportunities, and making educated decisions helped me grow my portfolio by 76.53% at its highest in 3 years. Due to market conditions, it has come down by 20% – 39%, but when you are in for the long-term, this volatility opens up buying opportunities. Let’s get into what to look out for when investing.
Where to Learn About Stock Market Investing?
There are numerous resources for learning about stock market investment strategies, like books or online videos. Watching videos online from experienced investors and explaining why they chose a specific investment strategy was helpful for me. I wouldn’t necessarily listen to particular companies to buy or invest in without doing my own due diligence. There are also thousands of licensed financial professionals in the United States to help.
Making Money Fast
Most times, I found that when I had an opportunity to make money fast, it didn’t work or may have worked temporarily and then came down eventually. Some people find ways to make money faster than others, but the long-term strategy may be better if your risk tolerance isn’t as high. I’ll talk more about risk tolerance next.
There may be strategies for people who want to make money fast, but most investments take time to allow for actual growth and capital appreciation. That could be one year, ten years, or even twenty-five years, depending on the company or target for growth.
Not Measuring Risk Tolerance
Measuring risk tolerance can be extremely important for someone trying to figure out which type of strategy to pursue. I knew I was not too fond of the stress of checking my stocks every day. I wanted a long-term income source from my investments. That is when I found the strategy for dividend growth investing, which lets me bring in dividend income while the company appreciates in value.
I only put in what I can afford to lose and what I don’t need in the short term. Since I am investing long-term, I almost make it seem like I can’t see or use that money for a long time. I use an individual brokerage account to buy stocks and ETFs because I can liquidate the portfolio if needed without any penalties, but that is a worst-case scenario. Another reason for liquidating my portfolio/stocks would be for a more significant investment like real estate or because I think a company has lost its growth potential.
Asking a certified financial professional for advice and/or a plan could be very beneficial.
Researching different strategies, investment opportunities, and the overall economic climate helps gauge which decisions I should make for my portfolio. If an investor doesn’t want to research or take the time to learn about investing, it may be tough to grow in the long term. Patience is key for investing.
Picking a Plan and Staying Persistent
Picking a plan and staying persistent can help avoid common mistakes in investing. Once I decided on my investing strategy, it was easier to get through the volatile markets. I usually stick to the plan and dollar cost average when my portfolio is down.
Of course, it can be valuable to keep learning and pivoting if necessary. If a sector may have growth potential, I try to find a company within that sector that aligns with my investing strategy. I look for companies with authority and healthy fundamentals.
Not Putting in the Work
Money doesn’t come easy in the stock market with any strategy, whether trading or long-term investing. Research, planning, dedication, and due diligence require work and effort. The process and work involved in investing and focusing on a strategy can become fun, especially when it starts to work.
Most companies and ETFs have pages on their websites for investor relations where you can find financial statements and other important information regarding the company.
I found that thinking long-term can help with short-term volatility and fluctuations. If my portfolio drops 5% in a day, I usually look at my average cost or (purchase price) to see if I want to average down on the stock. I use this strategy in the short-term and long-term, looking at how the stock performed weekly, monthly, and year-to-date.
There is no way to know precisely where the market is going to be, but there are ways to mitigate risk by using diversification. There are more complex methods for diversifying; I started with buying companies in different sectors. Buying ETFs can also be another way to diversify; there are even ones focusing on specific sectors. Check out this article if you’re interested in learning more about ETFs and how many to have in a portfolio.
Unless your strategy is to day trade, I found it ineffective to check my investing accounts daily because if you invest for the long term, it will seem much longer to see things go as planned. The only time I find it helpful to check my accounts is if I have a plan to dollar cost average in or buy more of a company/ETF.
I found it more effective to research and do more due diligence in the short term daily. Looking at global economic news, checking the economic calendar, exploring new investment opportunities, and seeing where the market is on a monthly or quarterly basis can be helpful for preparation and gaining knowledge.
To conclude, investing has many benefits but can also be hard to stick with initially. Sometimes it can go very well in the beginning, like for me, the past couple of years, and now it’s starting to have more volatility. Having a good plan, continuing to learn/research, and understanding the long-term benefits of investing can help an investor stay persistent.
Some learning methods can involve reading books, watching videos online, taking a class or course, and/or any other medium in which you learn best.