Make no mistake: investing is tough, especially for beginners with only a rough idea of what they’re doing.
Here are ten of the worst mistakes that first-time investors make, as well as some sound advice on how to avoid these pitfalls.
1. Assuming They Need Tons of Money
Technology has changed the world of investing to the point where it’s nearly unrecognizable. Whereas you once needed a broker and a wad of cash to start investing, you now likely have everything you need in your pocket, via your smartphone.
Various apps and sites will let you invest with as little as $10-$50.
2. Keeping Too Close an Eye on Investments
While you should be diligent and aware of your holdings, you should avoid checking them obsessively (i.e. daily). Investments are, and have always been, long-term strategies for growth.
3. Putting Too Much Into a Single Stock
While investment has changed a lot, diversification is still the name of the game. Choose a mix of bonds and stocks–international stocks are good for this as well. Some investment apps provide automatic diversification options to get you started.
4. Ignorance of Trade Costs
You need to know how much trades cost with broker-dealers; they can be surprisingly (gallingly) expensive. Legally, they are required to provide you with this information–don’t get left in the dark while your broker makes money by selling you trade after trade.
5. Neglecting Retirement Plans
IRAs and 401(k) plans offer incredible tax benefits and monetary growth. Some say that these investments are the only ones with truly guaranteed returns.
6. Not Embracing Risk
So-called “safe” investments seldom provide returns and gains. These investments are more akin to “saving” than they are to “investing.” The younger you are, the more you should invest in stocks as opposed to fixed-income assets.
7. Purchasing Individual Stocks
Until you know how the game is played, avoid buying individual stocks. There is too much fluctuation and volatility in this strategy.
8. Failure to Understand Tax Implications
Many first-timers are out to make “quick gains.” They’re then blindsided by the fact that these gains are taxed at the same rate as income–whereas investments held for a year or more are taxed as long-term investments.
9. Choosing Stocks Based on Emotions/Feelings
Money is no laughing matter, so it’s easy to become emotional over the ups and downs of stocks. However, you should use your long-term convictions to steer your investment strategies. Don’t hold onto a failing stock for sentimental reasons–a stock’s past doesn’t indicate its future.
10. Putting Investments off “Until Later”
Most people wait too long to start investing. It’s a big mistake to wait until your “Autumn” years to start investing. Those who begin earlier not only provide themselves with stabler futures, they are more successful at getting out of debt.
Best of luck, beginning investor–you’ll need it!
Davenport Laroche’s headquarters are strategically located in Hong Kong which allows investors to benefit from the busiest trading market in the world, China.