The stock market, bond market, and other investment tools are a great way to earn money, and have it work for you. As a beginner, however, there are a few things to watch out for, mistakes that are most made by new investors.
Depending on others to make your decisions.
It can be tempting to be a follower, but the best advice you can take with investments is to do your research. Following trends may seem like the easier route, but just because others think it’s the best idea, doesn’t make it the best idea. Research companies, study trends: past and present. The best decision is an informed one. Also stay away from advice about option trading until you really understand what you are getting into and what the risks really are.
Investing money meant for every day funds.
It is so very important to make sure you have your budget accounted for. Relying on investment funds to pay your mortgage is the quickest way to lose your home. You should be able to pay all your bills, plus have emergency money set aside. Any money left over should be what you invest. Be prepared to lose every penny, it’s better safe than sorry!
Not having a plan.
After you’ve decided to become an investor, but before you make that first purchase, it is in your best interest to have a plan laid out. There are several different styles of trading: from day trading to trend following. Decide which is best for your lifestyle, and stick to that plan.
Not selling at the right time.
When looking through rose colored glasses, one may think that a rise in the market may continue long past it’s due. The best time to sell is at the top of a peak, but wait even just a few minutes too late, and you could be looking at a sharp decline. Hold on while the stock is steadily rising, but remember to let go before it heads its way back down.
Not knowing when to cut your losses.
You may think that down slope will soon turn back around and start climbing again, but be careful not to catch yourself in a bear market, and stuck with steadily declining stock. The best choice may be to sell before you lose even more.