10 Beginner Investment Mistakes (words of wisdom from Investopedia)

Discussion in 'Investing' started by Gray Wolf, Jul 25, 2016.

  1. Gray Wolf

    Gray Wolf Well-Known Member

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    Short video on Investopedia

    The idea of making your money work for you through investments is appealing. It is also one of the ways to accumulate wealth. However, if you are a beginner investor, be warned that investments are not a free lunch. You could lose all the money you have invested, making you worse off than you were before you started. To prevent this, here are ten mistakes to avoid:

    1. Don’t confuse gambling or speculation with making an investment. If you are acting on a hot tip or blindly picking a stock, you are not investing. Investing means making a decision that you are comfortable with and prepared to stick with for a while.
    2. Not researching the investment you are interested in. Research helps you understand an instrument or product and know what you are getting into. If you are investing in a stock, for instance, research the company and its business plans.
    3. Also, don’t invest without a time horizon in mind. If you are planning to accumulate money to buy a house, that could be more of a medium-term time frame. However, if you are investing to finance a young child’s college education, that is more of a long-term investment. You will have to find investments suitable to your time horizon.
    4. Remember that the return you expect comes with a risk. If an investment offers very attractive returns, also look at its risk profile and see how much money you could lose if things go wrong. And do not invest more than you can afford to lose.
    5. Do not lose sight of your risk tolerance, or your capacity to take on risk. If you are the sort of investor who can’t stomach volatility and the multiple ups and downs associated with the stock market, maybe you would be better off investing in the blue-chip stock of an established firm rather than in the volatile stock of a startup firm.
    6. Do not put all your eggs in one basket. Diversification is a way to avoid overexposure to any one investment. Having a portfolio made up of multiple investments protects you if one of them loses money. It also helps protect against volatility and extreme price movements in any one investment.
    7. Just because you are able to buy something at a low cost, doesn’t make it a good investment. Investment is about finding value. A high-priced stock could still offer value in terms of the prospects for return. A low-priced penny stock could look alluring based on price but may be a terrible investment.
    8. Keep in mind the tax consequences before you invest. You will get a tax break on some investments such as municipal bonds. Before you invest, look at what your return will be after adjusting for tax, taking into account the investment, your tax bracket, and your investment time horizon.
    9. Do not pay more than you need to on trading and brokerage fees. By holding on to your investment and not trading frequently you will save money on broker fees. Also shop around and find a broker that doesn’t charge excessive fees so you can keep more of the return you generate from your investment.
    10. Do not act on the premise that markets are efficient and you can’t make money by identifying good investments. While this is not an easy task, and every other investor has access to the same information as you do, it is possible to identify good investments by doing the research.
    The Bottom Line

    If you have the money to invest and are able to watch out for these beginner mistakes, you could actually make your investments pay off. And getting a good return on your investments could take you closer to your financial goals.
     
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  2. Zaysev

    Zaysev Member

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    "Do not act on the premise that markets are efficient and you can’t make money by identifying good investments. While this is not an easy task, and every other investor has access to the same information as you do, it is possible to identify good investments by doing the research."
    I'd add not to act on the premise that markets are unefficient and you can see what everyone can't. Quite a certain way to lose your investment.
     
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  3. Gray Wolf

    Gray Wolf Well-Known Member

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    Agree if proper research has not been done, but that is the premise of value investing, spotting value that others do not see. Ben Graham and Warren Buffet were quite good at it. :D
     
  4. Zaysev

    Zaysev Member

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    Well, the thread is titled "Beginner Investment Mistakes", and I really doubt beginners can perform proper research (and more importantly, interpret it properly). Just trying to stress that "overconfidence is a slow and insidious killer" ;)
     
  5. Gambit

    Gambit Active Member

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  6. Mark Bronson

    Mark Bronson New Member

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    #9 is SO important! I did not do my due diligence when starting out and it really cost me. Thankfully I found Cold Spring Advisory and they were able to help me recover my losses, otherwise it would have had a serious negative impact on my future.
     
  7. David Smith

    David Smith Member

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    Beginner Investment Mistakes

    • Having no investment plan
    • Putting all your eggs in one basket
    • Investing cash reserves
    • Don’t Confuse Historical Returns With Future Expectations
    • INVESTING IN LOW PRICED STOCKS
    • INVESTING CASH RESERVES
    • Don’t Forget to Invest in Your Financial Education
     
  8. Brock Cartwright

    Brock Cartwright New Member

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    All the above mentioned points are important while starting your investment plans. Here, you can find some investment plans for long term goal. If you have money to invest you can go for mutual funds or ETF. Yet, before you begin your venture do look into appropriately.
     
  9. Anny.M

    Anny.M New Member

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    Useful for beginners. Especially №7. Some new investors think that if they buy something that costs a bit, they will have the great income, but most often all the way around
     
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  10. kirtimeliwal

    kirtimeliwal New Member

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    Bigger mistakes done by most of the traders is to start trading without having any trading plan.It is must for every trader.
    The second mistake is not to follow latest trends of the market.
    If you are not paying attention to market movements it is another big mistake of a trader because it is must to be aware of the market.
    Not having a proper investment strategy.
    Not having basic knowledge about the stock market.
     
  11. Anny.M

    Anny.M New Member

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    "Do not put all your eggs in one basket." To say the truth, I think that these words we can use for everything where we want put our money
     
  12. Jonathan Wiley

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    It was almost an ultimate list of mistakes. But I also found useful the next tips:
    - Investing money you’ll need soon
    - Waiting until the market is ‘safe’
    - Taking a stock tip

     
  13. Mark22

    Mark22 Member

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    Don't trust the extraordinary gains of the stock market. A useful tip to avoid setting impossible goals is to focus on mastering the art of being satisfied with the results obtained, at least in the short term.
     

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