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mistakes of new investors

5 Common Mistake of Newbie Investors

The common man is not an experienced and professional investor. They make investments sparingly hoping that it will set them for life. They make investments with the hope that they will be able to buy a home, educate their children, and have a comfortable retirement. Small mistakes in these investments can cause them to loose their lives earnings. It is important for them to be aware and make the investments in a sensible and informed manner in order to get the highest returns, or at the very least not lose the initial principal. Some common mistakes that newbie investors tend to make are listed below.

HIGH INVESTMENT, LOW RETURNS

It is essential that you do the necessary calculations before you make an investment. There are a lot of times when an investment seems sensible but when it get down to crunching the numbers, it does not seem so profitable after all. You should make sure that the amount you invest comes back to you within a certain time. Only then will you be able to yield the necessary return in order to make your investment profitable. Your investment should ideally be reasonable in cost and yet yield high cash returns. In case you do not have the necessary financial knowledge, it is best to consult a friend or family member who does. Knowledge of terms like P/E Ratio, PEG Ratio and other important details are essential. If you enter into an investment with adequate preparation, you will never find yourself at a loss.

UNPLANNED INVESTMENTS

Before you make an investment, you should have a solid financial plan. You should know what you require of the investment i.e. know how much return you need in order to sustain yourself. You should also have a timeline for when you need the return by. You can make a long-term investment if you are saving for retirement but a short term investment might be more practical for your children’s education. You should have enough cash for back-up so that even if you do face a loss, you will have enough to survive on. Another important thing to take into account is the risks involved with the investments and if you have enough cash flow to fall back on. One thing that smart investors do is to put their investments in small quantities in different places. This helps to establish a safety net so that even if one investment does not pan out as expected, there are others to count on.

FEAR OF FAILURE 

Not everybody has equal luck in the stock market or in the field of investment. Some mistakes that you might have made when you were young and uneducated might make you wary of new investments. In such cases, it is always better to learn from the mistakes instead of dwelling on them. You can start with smaller investments and gradually grow your portfolio as you gain confidence. Your old investments will only help you make better investments in the future.

BETTER SAFE THAN SORRY 

Investing can be very addictive. Sometimes, investors become so obsessed with their portfolio that they start worrying over the tiniest details. An investment is supposed to make you feel safe, not increase your worries. Make a smart investment and rest easy. If you see that an investment is too risky and is causing you stress, you should get out of it before it is too late. A safe investment can give you a lot of peace of mind.

KNOWING THE RIGHT TIMING 

One mistake that newbie investors tend to make is letting the right time pass by. As important as it is to know when to buy a stock or bond, it is, even more, important to know when to sell it. You should not be selfish and stick to your investment in the hope that it will increase even more. If it is making enough profit, you should sell it when you are getting a high price for it. Even if you are tempted to take a chance, you can you get your return on half your investment just to be safe. Conversely, if you see that the investment is not yielding the return that you expected, you should sell it and cut your losses. It is better to lose a small amount than a large quantity.

About Prateek Agarwal

I am Chartered Accountant by profession, practicing in Jaipur. I have interest in accounting and taxation field.

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