First-time investors make a lot of mistakes, even when they think that they’re following the safest investment opportunity available to them. People typically get started with investing through their retirement accounts.
And when a person chooses how to divide up their investment, they often do so blindly.
The first, and often biggest, mistake is entering investments without a plan.
1. Lack of a Proper Plan
Investors need to have a plan, and they need to stick to it. A plan may be investing in the long-term when you’re young, but when you’re older, this plan will change. Older investors will need more security, less risk and the possibility of liquidating their investments.
What will your plan be?
If you know where you want your investments to go, you’ll be better off as an investor.
2. Leverage Trading to Big Losses
Leverage trading allows a person to engage in a trade for more money than they have in their accounts. While leverage trading can provide massive returns, the losses can be equally as staggering.
First-time investors have no business leverage trading because they’ll often lose all of their capital, and more, in the process.
3. Lack of Diversity
Diversity also goes along with having a proper plan in place for your investment. When you lack diversity, your entire portfolio is at risk of losses. For example, if you invested heavily in the U.S. stock market, you would be suffering some of the worst losses in decades.
The losses are some of the worst since the Great Depression.
Padding against these losses requires diversity, and this includes:
- Foreign stocks
- Real estate
New investors are chasing big gains, and this often leads to investing in companies that they have no clue about – a big no-no.
4. Trying to Beat the Index
Investing in single companies is fine, but wouldn’t it be better to invest in the entire index? Warren Buffett says “yes,” and this is the man who is considered the best investor on the planet. Why?
Indexes are going to provide greater protection for your portfolio, and these indexes will beat most mutual funds and other investment vehicles over the long-term.
5. Thinking in the Short-term
Short-term investments may lead to immediate gains, or they may lead to immediate failures. When an investor looks into penny stocks or day-trading, they fall for the allure of the potential to make a lot of money.
After all, we’ve all heard of the overnight millionaires that have made it big with just $1,000.
But that’s not likely to be you. A lot of luck goes into this short-term trading, and the majority of people will lose out on their entire investment when they’re in it for the short-term.
Instead, invest for the long-term, enjoy the ups and downs, and cash out on investment at the opportune time.