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10 common mistakes made in investing
When stock markets are going up, some people make some money. These people always let you know when they make money, but how many of them would tell you when they lose money? For those who have supposedly made money, have they worked out the amount of their principal invested to find out whether their net financial position is above or below water?
In general, the majority of people who invest directly in the stock market will lose money, owing to the many mistakes that could be committed. In which case, the 10 common mistakes made in investing are:
1. Investing money which you cannot afford to lose
Do you have a 'just in case' fund that will cover six months of your expenses? If you do not have this amount, please do not invest. Also, only invest money which you do not need in the next three to five years.
2. Investing when you do not have holding power
The danger is that you may be forced to sell at the worst time and at the worst price.
3. Investing without the necessary knowledge, without an 'investment licence'
If you do not have a driving licence, would you dare to drive a car? If you do not know how to drive, you can be driven around. Take a bus, take a taxi, or ride the MRT. Basically, you do not have to drive. Similarly, if you do not know how to invest, then you would be better off leaving the investing to the experts.
In which case, you could invest your funds in unit trusts. In any case, individuals should start with what they know most about. If you know little about investments, then you should find out more.
4. Investing emotionally
When emotions go up, logic goes down. The two main emotions driving stock markets up and down are fear and greed. When prices are low, people are afraid that the prices may drop further, this is the fear of loss. When prices move up, people are afraid of missing out, this is when greed comes into play.
5. Wanting to win all the time, but will not admit to mistakes made
Even famous investors make investment mistakes. If you always want to be right, you will surely end up losing. Remember, you will only need to win six out of 10 times to make money.
6. Falling in love with your investments
The danger when you fall in love with your investments is that instead of analysing your investment performance in a rational way, you might let your emotions get in the way.
7. Gambling rather than investing
To some people, investing is like trying their luck, much like buying 4D. If you have this attitude towards 'investing', you are actually gambling without knowing it or admitting to it.
8. Investing based on what has just happened, much like driving by looking in the rear-view mirror
We should look forward (at least six months ahead of us), rather than look at what has just happened.
9. Trying to time the market... thinking that there is a 'best time' to invest
Even when the market is good, there are people who lose money. And when the market is bad, there are people who make money. So is there really a 'best time' to invest?
10. Investing beyond your risk tolerance
Most people know what they fear and what they cannot comfortably accept. If you know that and invest within your tolerance levels, you have a good chance of staying with it. If you stay with it, you have a good chance of being successful.
Dennis Ng is director of Leverage Holding and Master Your Finance. Posted via www.MoneyMatters.sg, your guide on how to make more money, save smarter, invest intelligently, and enjoy your money like a pro. Click here to get our free report on what you must know about financial freedom.
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