Investing has become significantly user-friendly in recent times, and one doesn’t necessarily need to be a Wall Street professional to deal in stocks, shares or forex markets. Digital trading platforms have enabled anyone to try their hand at investing, though it’s essential to be alert to potential pitfalls. Many newcomers to investing often stumble on common pitfalls.
Beginner investors can sometimes be drawn in by flashy promises of huge returns for minimal effort. However, for every social media personality flaunting their flashy cars and wads of cash, there are countless others who falter due to a lack of understanding of key principles like leverage. Learning and developing an effective investment strategy is crucial for success.
Let’s discuss the 6 most common mistakes that beginner investors tend to make:
1. Lack of practice: Just like any new venture, practice is key in trading. Using a practice or demo account to get comfortable with a chaotic market like Forex is far from being a silly move. The more time you invest in honing your trading strategies, the less likely you will lose substantial money. Try to familiarize yourself with all aspects of the platform you choose to avoid panic and confusion during crucial moments requiring quick decisions.
2. Relying on self-proclaimed ‘experts’: There are numerous self-proclaimed investment experts out there, but sadly, many of them excel only in conning individuals of their hard-earned savings. Be wary of telemarketers promising sure-shot investment schemes, and don’t get carried away by stock tips doing rounds on social media. A wise investor always conducts personal research and makes informed decisions based on facts rather than hearsay.
3. Pursuing lost money: Investing does share similarities with gambling, which leads some to repetitively invest to recoup their losses. This seldom works. Instead, after a failed investment, evaluate what went wrong and learn from it. Investing additional funds hoping to recover from previous losses may result in panic-driven decisions, causing more harm.
4. Risking unaffordable losses: It’s shocking how many new investors use funds that they simply cannot afford to lose. Be a prudent investor and risk only disposable income, i.e., money not earmarked for necessary expenses or retirement. If you lose such funds, it won’t cause detrimental financial distress.
5. Keeping all eggs in one basket: Smart investors diversify their portfolio as a safety buffer. This strategy distributes potential risk across varied asset classes and share categories. You could consider investing in gold, silver, stocks, bonds, ETFs, and other forms of investments.
6. Overtrading: Trading continuously can be damaging. Be patient and thoughtful about each of your trading decisions. Ensure you are well-rested before trading to keep your mind sharp. Consider mirror trading for learning from seasoned investors with less risk.