Even when you have planned everything out and are confident that your financial needs will be met and accomplished, beware because anything could happen! Taking your vehicle to the garage for repairs, doing minor or major home improvements or losing your job can all come in between a carefully planned investment. However, there are five biggest investment pitfalls that can be avoided. Knowing where you financially stand and where you will end up are essential to know if you want to be financially successful in the long run. However, it is easy to understand why people find it difficult to invest after they have gone through such a difficult and rough economical time.
The first common investment pitfall is getting a late start. It is better to start investing early so it will easier to achieve your goals that way. For example, lets say an investor starts investing $2000 a year at the age of 16 when they are starting their first job and another individual starts investing at the age of 26 at the middle of their employment life. The early investor will be able to make $2,114,379 at the age of 65 while the late one will only make $802,895.
The second pitfall is not doing your due diligence. Everybody should do the proper research before purchasing anything. And never let your emotions come in your way while you are investing as you need to be objective. A stock price will increase due to fundamentals in the financial statements and not because you have a feeling that it will increase. You need to also make sure that your financial advisor is competent and experience enough to make the right decisions for you. Your investments will be in the hands of the financial advisor.
The third point is confusing investing with speculating. Investors should avoid day trading which is trading very quickly in and out of a stock. The most horrible mistake an investor can make is listening to a hot tip. If something sounds very appealing then you should acquire all the information and do your research first before acting upon it. Simply because someone you know says that a stock will reach sky high will not make it true. So it is very important to do your research before taking any actions on what you hear.
The fourth point is that you should not diversify adequately. A good portfolio should have a specific company, industry or investment type. It should be made on an individual basis after looking at all of your risk tolerances.
The last biggest investment pitfall is purchasing high and selling low. People tend to invest in a stock when the prices have increases and sell when the inverse takes place. If the proper research has been done by the investor then this will not happen. Recessions and market crashes should be the best time for investors. However, just like good wine, investments do prove to be better with age.