Bad Investor Mistakes
Investing is both an art and a science. It also takes time to learn. Some people start making the most mistakes when they first try their hand at investing. Most start out as bad investors. But over time, some investors pick up some lessons from their mistakes and make sure that they do not repeat it. It is only after going through such a stage and survive do most investors learn to enjoy success and profits.
While it is common for first-time investors to make mistakes, it will help you avoid them by having idea on what are the common blunders that many bad investors make. Here are some of them.
Too Much Trading
With investors today increasing in number, thanks to technology, both good and bad changes are evident. Technology has allowed investors better access to the market and the trading facilities than ever before. This has brought down the transaction rates for trades. While many investors may perceive this as a good thing, it also comes with an unwelcome consequence- the mistake of too much trading.
Before, traders have to pay up considerable transaction fees to make each trade possible. Since it is costly, most investors think about each trade carefully before they make a final decision. They make sure that they are making the right move and profit from each trade they make.
But as the transaction fees become more affordable, more and more investors engage in more and more trades on average. Many investors think that they can beat the market through active trading. But each trade, especially for a novice investor can result in mistakes that can lead to losses instead of profits. Active trading results in less deliberate attempts to trade with decision made based on how the current market is performing. Investors begin to look for short-term gains. Their investments tend to underperform in the market.
Long-Term Plans, Short-Term Reactions
Generally, most investors have a long-term plan for investing. They invest for the future. They would like to create a retirement fund. They want to start a college fund for their kids. These plans are usually 10 to 15 years down the road. While most investors try to take advantage of compounding growth of their long-term investments, many make the mistake of watching the market under the microscope. They tend to react to a bad situation by making harsh decisions. Just a bad showing at the market can lead some investors to fear for their investments. They make random decisions based on emotions. Such decisions can cause more losses than gains.
Lack of Diversification
Beginner investors make the mistake of loading up on investments from one industry that provides promise and bigger returns. They try to invest in stocks considered as highly recognized and well-established companies. But then, they put themselves in too big of a risk by doing so. They are just one company bankruptcy away from losing all their investments.
Lack of diversification places an investor in a precarious situation. The investments face a higher level of risk than usual. Diversification is a way to lessen or dampen the possible risks. When one investment fails to perform, the other takes up the slack. This way, losses are minimized.
Investing – GuideTo.Com
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