‘The expert in anything was once a beginner.’ Rarely do these words ring truer than with regard to financial investments. You may be new to investing, but some day you could be an expert if you manage to avoid some common mistakes made by investment newbies.
One thing that is unavoidable on the path to learning new things is committing mistakes. But, what if mistakes could be avoided altogether? Yes, it’s possible.
If you are new to investing, then try and avoid these 8 common mistakes investment newbies tend to make.
- No planning
If you fail to plan, you are in fact, planning to fail. Not trying to sound preachy, but the truth is that no matter what goals you wish to achieve in life, financial or otherwise, planning for them is a must.
If you just prepare a goal sheet but have no plans in place to achieve those goals, you are fighting a losing battle. So, buckle up, chalk out a plan and never take any financial or investment decisions in the future without a solid strategy in place.
Additional Reading: The Ultimate Financial Planning Guide
- Too scared to risk it
The age at which you start investing affects the risk you can take. If you start early, you can take more risks. Don’t be intimidated by risks, especially if the investment offers greater benefits over the long term.
You have to understand and accept that investments are never risk-proof, so you have to be prepared to risk a little and maybe lose a little to have a shot at earning a substantial amount. If you are too scared to take the leap, you won’t make any profits.
Additional Reading: Estimate Mutual Fund Risk
- No questions
Were you one of those kids who shied away from asking questions in school out of fear of ridicule? Well, it’s time you got out of your school shoes and cleared every single doubt you have about investing so as to avoid grave mistakes.
If you have any doubts about investments suggested by your financial advisor, get them cleared as soon as possible before taking the next step.
While most young investors tend to trust their financial advisors and it’s good to have a reliable source of information, there’s no harm in clarifying all your doubts or getting a second opinion. In fact, by asking questions, you will understand your financial situation better than before.
Additional Reading: Now Choose Your Financial Advisor Without Any Hassles
- Failure to differentiate between insurance and investments
Buying an insurance policy is a must. However, resorting to insurance only for the sake of investment isn’t particularly advisable. Just because you invest in an insurance policy, doesn’t mean you shouldn’t invest any further.
You have to strike a balance between buying the right insurance policy and investing in other financial assets. Yes, we agree that insurance products offer tax benefits, but that does not mean that you use all your money purchasing the most expensive policy.
You have to do a bit of research and find the best insurance policy for you. The same applies to your other investments as well.
Additional Reading: Are Investment Linked Insurance Products Any Good?
- Not rightly diversifying your portfolio
If you want to avoid market risks, it’s highly important to diversify your portfolio. Most first-time investors commit the mistake of investing all your money in one scheme. If your entire investment strategy relies on one scheme, then you run the risk of your money going down the drain if something goes wrong.
This is why diversification of your portfolio is extremely important. Be warned, however, that keeping track of diversified portfolios for newbie investors can be quite a task. So, it’s probably in your best interest to leave that task to a professional financial advisor.
Make sure you have a perfect blend of investments to minimise risk and maximise returns.
Additional Reading: Diversify Your Portfolio With Style
- Choosing friends over financial advisors
No, we don’t mean choosing to hang out with your friends rather than spending time with your financial advisor. What we mean is committing the common mistake of taking financial advice from your friends and family rather than trusting a certified financial professional.
Of course your close ones will almost always have your best interests at heart, but the power to give you the best ‘Return on Investments’ (ROI) lies with an industry expert. Of course, there’s nothing wrong in looking to your friends and family for advice, but relying on a trusted financial advisor is definitely less risky.
Additional Reading: Meeting With A Financial Planner? Here’s What To Expect
- Intuition over experts’ say
More often than not, you have to rely on your intuition in life. However, this does not have to apply when it comes to making financial decisions. It’s advisable to trust a financial expert more than trusting your own intuition.
Finding a reliable financial expert can be a task, but once you find the ‘one’, you will be quite satisfied with the investment tips and advice he or she can provide.
Additional Reading: Tips To Become An Investing Expert
- Falling for the ‘quick buck’ traps
Last, but not the least – Be wary of ‘quick buck’ schemes that start doing the rounds in the financial market. Every now and then, there’s a new scam around the corner. If anything looks fishy, don’t invest in it.
Fishy schemes like a survey-filling scheme, which offers double the amount you invest, or a scheme that ‘promises’ to multiply your investment in multiples of two every month, should be avoided at all costs.
In fact, if you come across similar schemes, make sure you file a complaint so that nobody else suffers either. Ensure that you invest in schemes that promise reasonable returns on your investment.
Additional Reading: Want To Become Rich? Here’s Your Guide
Well, looks like we’ve covered it all. However, remember that you must not get disheartened if you fail every now and then. In fact, being investment savvy takes years of exposure to financial knowledge. Just make sure you avoid all the mistakes listed above.
Being a new and young investor, you certainly have a lot of time to learn and earn. You have to cash in on the advantage that being young offers. And as the saying goes, ‘Don’t waste a good mistake, learn from it.’
For now, how about starting with a slightly safer option like a Fixed Deposit. Have you checked the list of the Fixed Deposit interest rates yet? What are you waiting for?