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The 7 Sins Of First-Time Investors
While investing might sound like the kind of thing that is only for grown-ups, there is a period in your life when you need to plan for your future financial stability. What an investment strategy provides is exactly that: An regular or irregular – depending on the type of investment – form of income you can rely on to build up your wealth and secure your lifestyle. The reason why investing is so important in modern life is precisely that the current economic situation makes it harder for Millennials to establish the comfortable lifestyle of the previous generations. Houses in the 1960s used to cost around $15,000, while the average house nowadays costs over $188,000. Needless to say, managing your finances as a young adult has never been more difficult. When previous generations could secure their old days without recurring to financial strategies, you don’t have a choice. You need to master the critical rules of investing to build up your stability and wealth not only for your old days but also for all the days before. Let’s be honest; prices are not going to drop in the future. As everything is getting more and more expensive, the sooner you take an interest in investments, the better off you will be. However, investing is not an easy game. You need to be prepared and research the topic before you dive in. Here are the 7 sins for first-time investors to avoid!
#1. Lack of knowledge
If you’re stuck in a daydream about winning the lottery or suddenly coming across a large inheritance, you might not have considered the importance of investing. Consequently, if you have not taken any interest in investing previously, it’s likely that you might commit costly mistakes on your first time. However, lack of knowledge can not only cost you your savings, but it can also incur serious debts. It’s common belief to imagine that successful investment portfolios rely on luck. In reality, you need to sit down and learn some of the necessary trading patterns, actors and systems before starting. It’s fair to say that you can trust a professional financial advisor to do the hard work for you. But you can also start with small lumps of money to learn more about the different stock market order types and financial metrics. You should also study the market before taking any decision.
#2. No risk tolerance
Trading is a risky game in which you could lose. But, unfortunately, if you’re scared of losing money, you may not have the necessary risk tolerance level to embrace the investment market. The key rule about trading is that if you can’t bear to lose, you can never win either. However, it’s crucial to understand that losing too much is also not recommended – if you can’t build back your financial stability after a loss, you are out of the investing game. Ultimately, low-risk tolerance implies that your emotions are likely to affect your strategic thinking. High or non-existent risk tolerance can be equally harmful. You need to hit the right balance.
#3. Lack of cost planning
There is a variety of investment strategies, from stock markets to property purchase. With each investment, there is the need to understand that the money to put towards it is not the whole story. As the saying goes, don’t put all your eggs in one basket, and the reason is that you will come across additional costs. In other words, whether you’re planning to purchase a property to let or buying stocks, don’t invest everything you own towards it. A Penthouse design holiday property, for instance, might pay for itself through renting but you need to maintain and renovate it first. The bottom line is always to consider all relevant costs and not stop at the price label.
#4. Greed: Wanting too much at the same time
Aside from lack of cost planning, a common mistake is to believe that if you invest everything you own in a specific strategy, then you are more likely to earn large sums. Ultimately, taking the plunge and investing it all is no guarantee of your financial success. You need to learn to develop your logical thinking over your emotional engagement. While it’s healthy to feel positive about your investment, people can quickly become exhilarated by small wins and decide to continue until they have won enough.
#5. Forgetfulness: Yes, you have to pay taxes
Your gains don’t come free of charges. You have to pay taxes on your investment gains, whether they come from the stock exchange market or your property rental activities. When the profits are invested further – in new stock exchange strategies or if they are used to pay your secondary home mortgage –, there is no taxable income left. However, in any other situation, forgetting to declare your wins can lead to tax fraud complications.
#6. Sharing the beginner’s luck
What happens when you win? If the first thing that pops to mind is to tell everyone about it, you’re making a big mistake. Indeed, as a rule of the thumb, whether you’re winning the lottery or whether you’re successful with your investment portfolio, the secret is to keep quiet about it. Indeed, making yourself known can affect your safety as you become a target for crime and greed. From friends who need financial support to people who are trying to harm you to steal your gains, nothing positive will come from attracting people’s attention to your financial luck.
#7. Lack of strategy
Being strategic about your financial plan is of the utmost importance. It’s not so much about keeping yourself informed of the opportunities that are available. It’s a matter of being able to plan a strategy that can guide your investment decisions and consider your objectives, risk tolerance and future needs. When you start investing today, you need to know already where you want to be in 5, 10, 15 years’ time. Your strategy will get you there. Without a plan, your investment pattern has the effectiveness of a headless chicken running in circles.
The bottom line is that you can’t do without investing if you want to achieve a stable financial lifestyle. But if you have to invest, at least, try to avoid the newbie’s mistakes that could cost you your savings and sanity!
