Investments are a must have in this day and age. Not only do they allow an individual to create a corpus for savings but they also enable them to earn good returns on their savings and can even generate regular income if done right. Searching the internet, one will come across scores of articles on what to invest where to invest and comparison articles but seldom do you find articles on what investors must not do in order to secure their investments in the long run. Below are key pitfalls people often tend to overlook while investing. Whether you are a first time investor or have been in the investment game for a while, keeping a note of these points will surely help bolster your investment tactics and maximise returns in the long run
Lacking The Financial Literacy: Many people who begin investing are often confused with terminology and what a dip or rise in stocks would indicate. Most people should follow the market closely and identify trends and patterns and not use an approach of callousness. The problem faced is that most investors lack the basic financial literacy and do not know the effects of important economic factors on their investments. Many people only have a faint clue of what the effects of inflation, risk and interest rates have on their investments and many more would have no idea of important world events that would shape their returns. For effective long time investment, one should always have an ear on the ground and be aware of important economic activities, be it introduction or change in economic policies in the resident country or on a global scale
Initial Investment Amounts are Too High: With the dynamic nature of markets, it makes it highly unpredictable and even seasoned investors often get predictions wrong and end up investing the other way. One should keep in mind that investments are to provide maximum results in the long run and hence should be treated as a marathon and not a sprint. To get a hang of investing, one should start off with smaller amounts and buy smaller portions of stock of a particular company and see how it fares over a period of time
Too Much of a Good Thing is a Bad Thing: Say you’ve been successful for a short while now and are just getting the hang of things, the successful spree eggs the person to invest more or increase the amount of activity which can be a bad thing at times. As it has been already mentioned, investment should be approached as a marathon and not a sprint. All the excess activity attracts fees and savings and these commissions tend to eat into the returns and when investors see the poor returns they get discouraged to continue investing. The constant buying and selling of trendy stocks lead to commissions and other sale related costs that can diminish the returns substantially
Long Run: Investments made need to be made in a way that they help pay out in the long run and high enough to beat the levels of inflation. There is no point telling oneself that they are in for the long run and keep checking on market prices every two seconds. Investors need to be mentally prepared and not expect results to appear instantly or should be able to not access their funds for the lock in period of an investment
Don’t Panic: If certain stocks purchased fall then one should definitely not panic. There will be many instances when stock of a particular company will witness a fall in its prices. Investors should not take rash decisions in a state of panic but should rather try and minimise the damage to a portfolio. Diversifying of stock and even buying more stock at lowered prices can help minimise this risk. Investments will pay off in the long run and these rise and fall of prices tend to average out given a long enough time period
Don’t Sell on The Rise: This works both ways. Do not sell stock on the rise nor buy it on the rise. Selling winning stocks right after a small rise is actually a very common error and investors can miss out on big paydays and buying stock on the rise is just as erroneous as most seasoned investors will know that stocks that rise will eventually fall and hence there’s no point buying stocks that have witnessed a rise only to find a fall in prices the day after you purchase them. Investors should stick to their game plan and long term investors should not change tactics to day trading all of a sudden as heavy losses may be incurred
Investment cannot be mastered in a single day. Much like Rome, returns cannot be achieved in a single day and a consistent and cautious approach is the best way to guarantee returns in the long run.