5 most common mistakes of novice investors

From an economic standpoint, giving up on investing money misses the point. However, investing that does not bring the desired result does not sound encouraging either. So check out what beginner investor mistakes you can avoid right now.

The truth is that our personal situation and the strategy we have chosen have the biggest impact on the investment results we achieve. From this point of view it cannot be said that investing is bad or very complicated. Only our decisions can be bad. The most depends on them. That is why I hope that you will avoid these basic mistakes.

Lack of plan

The most common problem associated with lack of a plan is "investing right now". In short, without analyzing the situation, you decide to invest your money and hope for a positive outcome. But have you thought about what you will do if something goes wrong? This is where at least a basic action strategy comes in handy. Ask yourself - what is the purpose of your investment? What time horizon do you need to achieve your goal?

Do you want extra money for retirement? Maybe for your child's future, because you want to give him/her a better start in a few years? Or maybe you are thinking about investing part of your savings because you want to get better results than on a deposit and capital protection is important to you?

See, these are completely different goals, so the way of investing for each of them may be different. Each of us may have many such goals and they need to be considered very individually.

Therefore, the strategy should be simple and consistent.

You need to think beforehand about what amounts you want to allocate to each investment. How do you want to invest them? As a one-off, or do you want to do it in a more systematic way? What funds or other investment products will fit your strategy? In what situation do you want to enter a given investment, and when do you plan to exit from it. This needs to be determined at the very beginning. Also, don't overlook the fact that your operating strategy should be consistent with your risk management strategy.

Risk mismatch

There is no easy way to make quick money. Huge profits with minimum risk? Such stories can be put rather between fairy tales. There are no shortcuts.

When you invest in funds you don't have to choose your own investment strategy regarding the selection of companies, purchase of shares etc. When you invest on the stock market by yourself, you certainly have many more decisions to make. When you buy fund units you put your money in the hands of experts. These are people who spend most of their lives analyzing and observing the markets. On top of that, they have an excellent education and even an aptitude for such work. They can do well what most of us don't have the time or ability to do.

But beware - this does not mean that they will decide our own personal strategy for multiplying money. They don't sit in our wallet. We're the ones who make the decision at the beginning about how we want to invest, what funds we choose, and what strategy we have for our life investments.

Therefore, don't be suggested by the expected sizable profits if you don't accept excessive risk. Do not undertake investments just because someone promises you fast and unrealistically high earnings.

At the other extreme are people who approach investing like a hedgehog. They assume in advance that investing must be aggressive, which is absolutely not true. It's enough to become familiar with the types of mutual funds.

A reliable way to reduce risk is to diversify, or diversify your investments.

First, determine your investment profile. This will help you choose the right investments for your preferences.

Unstable financial situation

Investing when you have an unstable financial situation is very risky. This is one of the quite common mistakes of novice investors.

The lack of a safety cushion in the form of savings in the amount equivalent to at least 3 months of your living expenses (or your entire family's, if you have one) can effectively spoil your investment plans.

To clarify - your financial security cushion is your foundation. Such funds are not suitable for investment. They are meant to protect you in case of unforeseen problems related to loss of income. They are your insurance policy. The bigger the cushion, the better. There is no shortage of advocates of having a cushion as large as 12 months of the entire family's living expenses.

If you don't have the security of savings or don't have any surplus money, it's better not to take up investing. Focus on saving first. Unless you want to start investing very small amounts as a workout, and losing them, if any, will not impair your quality of life. Make a decision on what losses, if any, you are willing to take. This is something you need to decide for yourself.

Lack of knowledge

If you don't know what you are investing in, if you don't understand a process or if you are not sure of the rightness of your decision - don't invest. A good test may be when you want to explain your investments to someone. If you can do it in a way that even a child can understand, it means that you know what it's all about. Give yourself time to learn, because even the best advisor can't replace you in making good decisions.

Giving in to emotions

This is also unfortunately one of the most common mistakes of novice investors.

Emotions have a big impact on our financial decisions. Especially when we are dealing with investing on gate.io here: https://inwestujfinanse.pl/gate-io-opinie. Unfortunately, impulsive decisions can have a disastrous effect on financial results. In making rational investment decisions, a predetermined strategy is particularly helpful. Determine at the very beginning, still in the cold, what you will do in a given situation. How you will behave.

This way your decision will not be changed by media reports (which often drive different behaviors) or the behavior of "most" investors. It is worth adding that neither hasty decisions nor excessive indecision work in investing.