I profoundly believe that there is no one without mistakes and nobody is infallible. Mistakes are common especially when it comes to investing. I am quite certain that there is no successful investor that did not make a mistake at one point in time or the other. To an investor who is a finance professional, some of these mistakes are common, and most investors keep repeating the same mistake because they do not learn from past mistakes. A smart investor will identify these common mistakes to learn from them and make better investing choices in the future. To help you, I, Maxim Bederov, have identified the 3 biggest mistakes an investor can make and hopefully find a way to avoid them.
3 Biggest Mistakes you can make when investing, by Maxim Bederov
- Lack of Patience: The saying that ‘slow and steady wins the race’ is perhaps very instructive here. In almost every area of life, I have seen people that followed diligence with patience coming out tops in their chosen sphere of endeavor. If patience plays out well for other fields, then it is an even more important virtue for any entrepreneur to acquire while investing. When you expect your portfolios to perform ‘magic,’ then you are on your way to doom. The business of investing requires some level of patience and consistency if you want to excel. When there is a new plan, it might not immediately yield the desired results. Sometimes it takes weeks or even months for that new policy to start playing out. It is impatience that will cause a finance professional to buy shares and assume that the shares will immediately be of benefit to him. This, of course, is not in line with the accurate and genuine timeline, which companies function under. So when investing next time, I propose you exercise a little patience and allow your portfolio to grow.
- Not Diversifying Your Portfolio: This is another common mistake that can be made by a finance professional. Sometimes, investors invest in a particular industry or stock, and when they see the benefits in it, they go overboard to invest everything they have in it without taking time to evaluate the likely associated risks with that move. This is popularly known as ‘putting your eggs in one basket.’ Not being able to diversify your portfolio can be dangerous and leads to lots of pitfalls.
In order to safely secure your assets, I usually advice every finance professional to ensure that the investments made are spread across diverse investments to avoid the loss or fatal mistakes over a short period of time. A good way to diversify your investments is by dollar-cost averaging, which is a process of purchasing stocks at a multiple price point. The effect is that if for instance there is a decline in price and it does not go lower than the least price you bought, then you are safe. This strategy can help you guide against substantial losses while improving your investments. As a general rule, ensure you do not put more than 5% to 15% on only one investment, and allocate to as many major sectors as possible.
- Invest money you cannot afford to lose: It is sad to say that I have seen a good number of finance professionals trade with money that they cannot afford to risk or lose. This brings about unnecessary fidgeting, heightened emotions, undue pressure, and you are most likely to make bad decisions that you would otherwise not make. Every finance professional should start doing better. The best way to invest is to use what I call ‘risk money’ or ‘expendable money.’ That way, you can make much better trading decisions that are not fueled by fear.
Words of Encouragement, Maxim Bederov
I encourage new investors not to be afraid of mistakes, instead, they should be able to learn and improve on the mistakes they made. The mistakes discussed above have most likely been made by every entrepreneur, finance professional, and many more. However, you are now in a better position to avoid them and make better investment choices.