First-time investors are often too excited to make their first extra dollar. Unfortunately, most of them make major mistakes and make losses instead. In fact, some people give up on investments, especially in stocks, after losing their first investment. One reason why first timers make mistakes is the lack of information. The idea of doubling their savings fast makes many ignore foundational investment principles. You do not have to follow the same trend. If you are one of first time investors and are thinking of investing your savings, here are some mistakes you must avoid at all costs.
1. Investing All of Your Capital in One Investment
You have heard this old saying many times before. Do not place all your eggs in one basket. It works in investments as well. Anything can go wrong in the market and you could lose all of your money overnight. Explore several investment options to spread your risks.
2. Buying Penny Stocks
It is rational for a first-time investor to avoid taking high risks without full information and experience in the stock market. Low priced stocks seem like a good idea to start with because you can buy thousands of stocks. You can make high profits if the price goes up because you have many stocks. However, penny stocks are highly volatile and easily manipulated. Getting proper information on their market trend is also difficult. You are better off with fewer quality stocks that are less volatile.
3. Relying on Hearsay and News
When you start your investments journey, you are keen to read any news, discussion, rumors, or advice on investments. You read any article in the newspapers and magazines with suggestions on the best stocks to buy. The truth is that some of the information you will find is inaccurate. You cannot learn how to pick the right stocks overnight. It takes time and experience to make the right moves in the market. Instead of relying on any news or information that you come across, seek professional help from financial advisors like Carnegie. You will learn to make the right decisions with professional help.
4. Borrowing to Invest in Stocks
If you approach a stockbroker, the first thing that comes to the broker’s mind is the commission. Brokers will always advise you to make investment moves that increase their brokerage fee. They are in business to make money. Hence, your broker may advise you to take a loan to add to your cash reserves to buy more stocks. Do not fall into this trap. You are likely to make a lower profit margin than the interest charged on the loan. Use your savings to make your first investment. Again, do not drain your savings because you still need cash for your normal bills and emergencies.
Making the right investment decisions is an art that you learn over time. As a first time investor, start taking small risks as you gain experience and knowledge in investments. Do not invest all your savings or put all the capital in one venture. Invest an amount that you can afford to lose. In addition, engage professional advisors to avoid making obvious mistakes. Simple mistakes may cost all of your money. Do not wait to learn from your mistakes. Instead, learn from other investors’ mistakes.