If you fancy yourself an amateur investor, you may enjoy buying and selling stocks to pad your portfolio. Perhaps you have a broker but you like to dabble in your own things on the side. Or maybe you aspire to handle your entire portfolio yourself. Whatever the case, it’s important to heed some warnings and avoid common investor mistakes like these.
Just keep in mind that stock investments tend to do well over time, so sticking it out over the long term is usually fairly advantageous. Building your wealth in stocks is still the best way to accumulate retirement and other types of savings. The ride may get bumpy here and there but overall, you should do well if you keep your wits about you and approach investments with a clear head.
Here are some mistakes many amateur investors make:
- Attempting to time the market: Many people think they can accurately predict the short-term movement of the stock market. They listen to pundits on TV, they listen to their brokers, they listen to all the chatter out here. Bottom line is, the short-term state of the market can’t be predicted. Don’t try, or you could end up getting burned.
- Attempting to mimic the actions of high-frequency traders: Day trading, flipping stocks and buying/selling daily can be a highly stressful way to approach investment. It’s better to invest in stocks for the long haul and let them ride rather than trade actively.
- Paying too many fees: You may assume that you have to pay lots of fees and expenses for others to manage your mutual fund investments when low-cost index funds that are just like those large indexes like the Standard & Poor’s 500-stock index are readily available, points out USA Today.
- Getting in too late: You may have been watching a stock that’s been doing super for a couple of years now with a steady rise that can’t possibly be wrong. Before you jump on it, realize that everything that goes up must come back down again. It could be nearing the end of its life. You’re better off researching the next big stock and getting in on the ground floor. Many investors mistakenly choose strategies and funds based on recent performance because they think they’re missing out on huge returns. Recognize that the cycle is likely coming to a close and move on.
- Failing to have a plan: You should always have something in writing to guide you through the years. Your priorities change, of course, as you age. Your investment plan should change as well. Align your portfolio with your end goal, no matter what the market is doing at any given time. Make sure your investment plan includes the following:
- Goals and objectives
- Risks you’re willing to take
- Measurement of your portfolio’s success
- Asset allocation
Diversification within those asset classes
On top of all those tips, have a securities fraud attorney like the one at Thomas Law Group on stand-by in case you experience losses by a less-than-reputable broker.