Giving into Panic Then Selling Low
When the market crashes, it’s hard not to get a bit panicky.
If you’re an average investor who has been buying and selling on the sly (without taking a real course in the markets), it’s natural to panic when the markets reach a certain low.
You’ll be full of regrets, thinking of what you could have done differently, always blaming the stocks you sold and thinking you should have held on to that cheap stock for longer.
This is especially true during specific periods … like after 9/11, the financial crisis of 2008, and most recently, during the political turmoil and economic uncertainty surrounding Brexit.
Realize that these unsettling periods will always happen and as an investor, you need to learn to look at them as opportunities.
Of course, it’s easy to sell low and buy high, but it’s much harder to be a long-term investor through thick and thin. Keeping your head on your shoulders when stocks seem to be dropping will lead to greater portfolio returns over time.
Overconfidence in Your Abilities
If you’re just getting started with investing, you might feel that you know more than most people. After all, homes, cars, and education rarely seem to teach you much about personal finance. While it may seem like you’re doing good as an entry-level investor, there’s bound to be at least a little bit of overconfidence in your abilities.
An optimistic outlook is good, but if you’re a novice you’re likely to make a few mistakes. While your instinct was probably right on the mark when you started, you may have gotten a couple of things wrong along the way.
You might purchase an online stock trading course to learn more about investing at the start of your journey. Although these programs can be beneficial in the short-term, they’ll only give you a limited perspective.
To build on your knowledge base, you’ll want to seek out the advice of advisors. But how can you tell the difference between a competent advisor and someone who’s just trying to make extra money?
Being Too Risk Averse
If you’re risk averse in one aspect of your life then it’s likely you’re risk averse in all other areas too.
There is no such thing as being a “safe” investor. You could instead talk about being a “conservative” investor or a “long-term” investor.
However, most types of investments carry some degree of risk. Bonds are deemed to carry the least risk since they are backed by the company or the government, but they don’t generate much growth either, especially in today’s environment with very low interest rates. They are about as “safe” as you’re ever going to get in the investment world.
It’s important that you limit your risk exposure, but in an oversimplified way of looking at it, taking no risk doesn’t mean you’re not exposed to risk, just that you’re exposed to less risk than you might be if you were willing to take greater risks.
Stop and Think
Investing can be tricky. It’s easy to find yourself adding to your portfolio without really knowing why. You may have read about an investment that you love and want to buy it, but before putting any money down, you should take a moment to examine your thought process.
There are some key questions that can help you decide if your investment is worthwhile.
What are you passionate about? There’s nothing wrong with buying something out of passion. In fact, it’s a great way to make sure that you’re investing in the right company. But it’s important to buy for passion and not because you think you’ll get rich quick. If you’re passionate about basketball, for example, and you think that you’ve found a company that focuses on the lifestyle of basketball players, you may be interested in buying shares. But you should take some time to consider your options and examine your reasoning before you go ahead with a purchase. Do you know much about the stock market?