At the end of the day, profitable investing boils down to these four words: Buy low, sell high. Sounds simple, right? Unfortunately, things are rarely as simple as they seem, no less so when it comes to investing.
With the stock market the way it is, these days there is a very little margin for error. Even a seemingly minor mistake can have huge financial repercussions, which is why avoiding as many investment blunders as you can is so important.
If you are a first-time investor, here are 5 mistakes experts agree you should try to steer clear of:
1. Short-term thinking
Many new investors are eager to jump into the market and start making money, so they try to cash in on hot, short-term gambles. However, even though this may occasionally yield some profit at first, in the long-run your portfolio will suffer. The market is unpredictable, and investors who try to time it perfectly will trip up.
Investment plans are a great way to stay focused on the long-term, rather than immediate gratification. Your plan should include a budget for investing, strategies for asset allocation and distributing your money amongst different investments, and a target goal. Having a clear plan will help you get through the ups and downs of the market and prevent you from getting sidetracked short-term risks.
Another way to add long-term stability into your portfolio is to invest in physical gold bullion. Stock markets are volatile and fickle, but gold has been around since ancient times and highly valued since before the rise and fall of the first human civilization. Now that’s real long-term thinking!
2. Forgetting to Diversify
Diversifying your portfolio is the key to creating stability through rough economic times. All long-term investments will inevitably have to face market downturns and maybe even recessions. If you don’t allocate your assets to different investments, then you run the risk of losing it all when the bad times come.
This is why precious metals can be portfolio life-savers. The value of precious metals is highest when stocks and currency are dropping, so as long as you diversify your investments with some physical gold or silver, your portfolio will remain relatively unharmed or even grow during economic sloughs.
3. Following Your Investments Too Closely
In the beginning especially, the overpowering desire to see what’s happening with your investments every day can be nearly irresistible. Unfortunately, after looking at the ups and downs in a session, first-time investors often get spooked and change their strategy.
In investing you need to leave your emotions behind and trust in the long-term plan that you already have in place. Obsessing over daily market movement will only get your eye off of the end goal.
4. Letting Media Outlets Determine Your Investment Decisions
Another common mistake that new investors make is letting talk show hosts, TV news programs, newspapers and Wall Street bloggers act as their financial advisor. While these media outlets and others can sometimes provide useful information, they shouldn’t be taken too seriously.
The media tends to only look at the short-term rather than the big picture, and the data these economic “experts” cite is often skewed or taken out of context—or they intentionally try to mislead viewers in order to affect the market in a way that is profitable for them.
5. Waiting Too Long
In terms of investing, remember that time is on your side. The earlier you start investing, the longer you have to build on your portfolio before you retire. In fact, experts are now advising young people to start a 401(k) plan during their first year at work.
If you wait too long to start investing, you will have less wiggle room for mistakes and riding out economic slumps.
Hopefully, now that you know these common beginner mistakes, you won’t get tripped up right out of the gate and you can start making wiser investment decisions immediately.
As the saying goes, “to err is human,” but doing all you can to avoid them and learning how to get back up when you fail is ultimately what separates the victories from the failures. This is true in investing, just as it is in life.