Mistakes first-time investors make and how to avoid them

      Comments Off on Mistakes first-time investors make and how to avoid them

Most peoplerecognise that in order to maximise the potential earning capacity of their savings, the best route to take is not a savings account in a bank. Having said that, many opt to try their hand at investments without thinking about the venture in detail. According to a senior financial analyst at Wilkins Finance, gone are the days that people trust a stockbroker. Many prefer to do some research online and then in direct proportion to their appetite for risk, take the investment plunge. This factual matrix almost always results in the making of mistakes, some more costly than others. They say that experience teaches wisdom but when it comes to one’s hard earned money it is perhaps better to consider some of the mistakes that first-time investors make and how you can avoid them.

Purchasing on the authority of unfounded tips

The source of these “tips” can be family members, friends or even professionals telling you that a particular stock is a must-have for your portfolio. The fact is that sometimes the tips actually relate to what could be nothing more than a passing fad and could result in colossal losses. So, to avoid this pitfall, you do your own research as a first step. With the pervasive nature of the internet, it is likely that you can find information about almost anything. Investors hate getting duped and post their personal experience with different stocks and other types of investments, which may give insight into whether it is worth your while. Even though you are not going to be putting complete confidence in hearsay, if many people report that something is a fraud and it does not live up to expectations, alarm bells should go off in your head. The next step and this is an important one, is to get an unbiased opinion from an independent financial advisor or other investment professionals.

Buying Stocks which seem inexpensive

This is a very popular mistake among first-time investors, especially if your appetite for risk is conservative. The stocks appear cheap so you figure that if losses are sustained, it would be minimal. The best approach is to try to look at, not the fact that a stock price has fallen but rather to find the reason behind the decrease in price. If reasons such as a change of chief personnel, poor response to new competition are behind the decline, then it’s a sign that the stock price may not increase anytime soon and could actually experience a further decrease.

Having a plan

The difference between many first time investors and seasoned investors who actually have a career in investing is having a plan. People who begin investing for the first time tend to do so blindly with no goals, plans or projected outcomes.This can be disastrous as it severely inhibits your ability to recognise early signs that you may begoing off course in order to make the necessary adjustments. In addition, it can result in the makingof emotion-driven decisions as opposed torational facts. Therefore; before you start, do your research and make a plan. This may even be a good time to consult a professional to figure out where you want to go and how you will get there.

Display a lack of confidence

It may be true that you are not a financial expert and have very little knowledge of investments but those who seek to invest have abilities which allow them to be thoughtful and prudent when it comes to making decisions. However, this is not usually viewed as being enough or important and so becomes a significant pitfall for first-time investors. The reason is that they allow many opportunities to by-pass them, thinking that some sort of superhuman knowledge is required.

As mentioned before, investing has a lot to do with being prudent and rational;therefore you already have some of the tools you need. Combine that with knowledge of the first three mistakes discussed above and it can result in your being able to successfully navigate the investment world so as to develop a substantial portfolio.