If you’re a new investor, it can be helpful to know some common mistakes and how to avoid them — without having to learn the hard way. With that in mind, here are four common investing mistakes (and what you should do instead).
1. Making Short-Term Decisions
Some people start investing and immediately expect profits. Of course, some stocks suddenly shoot up in value, and you’ll often hear about it in the news — but it’s only newsworthy because it’s rare for a stock to experience a meteoric rise. The truth is that most stocks see slow growth. If all you’re doing is chasing down quick profits, you’ll miss out on potentially lucrative long-term investment strategies.
You might think that once you’ve been investing for a few years, you’ll be able to reliably make good short-term decisions. But this isn’t a matter of experience; even professionals can’t consistently time the market! No matter who you are, your best bet is to adopt a long-term outlook.
2. Reacting to News
Following market news isn’t a bad thing. In many cases, the news can give insight into potential investment choices that can serve you well. However, some investors make the mistake of instantly reacting to the news without thinking through their strategy.
For example, in a falling market, it can be tempting to buy in an attempt to catch the bottom. In a perfect world, this would be a smart strategy, but the truth is that timing the market like this rarely works. It’s like trying to catch a falling knife. Sometimes you catch it; sometimes you get hurt.
Similarly, if you see a given stock’s value increase so much that it makes the news (think GameStop in 2021), it can be tempting to invest. But trends like this are notoriously unpredictable. It’s entirely possible to invest in a rising stock one day and see its value crash the next.
The takeaway is that your emotions can get in the way of a smart investment strategy. So do your best to keep emotions out of it, and follow the strategy you’ve set.
3. Only Investing for Growth
Investing for growth primarily focuses on expanding your portfolio. There’s nothing wrong with that, but both income and protection are critical parts of a strong portfolio.
The best way to achieve balance and protect your portfolio in the event of a crash is to diversify. Growth-focused investments often include real estate, stocks, and bonds. On the other hand, income-focused investments can provide consistent, reliable payouts. They include dividend-paying stocks and mutual funds. A well-protected portfolio will include a balance of both.
An experienced financial advisor can help you learn how to diversify your investments for maximum returns and security. They also will be able to give you advice on how to best protect your portfolio in the event of a market crash.
4. Not Knowing Offense vs. Defense
These are two common investment strategies. An offensive strategy’s primary focus is to maximize your returns. Defensive investing focuses on protecting your assets first and (moderate) growth second.
As you may have guessed, an offensive strategy involves taking on much greater risk, although the potential for significant returns is similarly much greater. Defensive investing is considered very low-risk, though its return on investment is generally less.
Which strategy is right for you depends on your situation. For instance, if you’re retired with very limited income, a defensive strategy may be the right choice. If you can afford to lose the money you’ve invested and are ready to take a risk, an offensive strategy is ideal.
Invest with Confidence
Hopefully, this list will help you avoid common investing mistakes. Of course, some mistakes are inevitable, especially for the new investor. But through making mistakes, you’ll learn how to develop a winning investment strategy that works for you.
At Ty J. Young Wealth Management, we help our clients protect their hard-earned retirement dollars, grow their money, and it’s simple. Learn more through our 3 Secrets to Financial Security eBook. Visit start.tyjyoung.com to download your free copy.
