Investing can be tricky sometimes. “While some peopleget really excited about investing, too many investors make the same investing mistakes over and over again”, says Saar Pilosof, an experienced investments specialist. “This results in unnecessary frustration and losses that could have been avoided or minimized”. Here are 5 common investing mistakes that investors make and how to avoid making those same mistakes yourself:
- Investing for the Short Term – Too many investors expect to make a killing by investing short term. This is partially due to the proliferation of financial instruments such as pyramid schemes that promise high returns in short periods of time. These schemes are highly risky. By investing for the longer term, you reduce the risk of loss and improve your chances of making profitable investments.
- Not Knowing How to Read Financial Statements – The best investors know how to read financial statements and how to determine what investments have the greater chance of profitability. Otherwise you must depend on the investment opinion and suggestion of others.
- Failure to Diversify – The saying “don’t put all your eggs in one basket” is true and sage advice when it comes to investing. By wisely allocating your investment funds across diversified assets, you not only reduce your risk but also improve your potential returns.
- Borrowing to Invest – It is a bad idea to borrow funds to invest because it reduces or eliminates the net investment returns. Also, since investment returns are not guaranteed, there is the possibility of making an investment loss. Add the loan payments to that and the potential losses are even bigger.
- Throwing Good Money After Bad Money – Some investors will continue to invest more money even after a long streak of losses. This is a recipe for disaster. It is best to cut your losses quickly and get out.