*This post was specially requested by one of my readers after my last post on the 30 best stocks for 2018. I love love love getting feedback so thank you everyone!*
Make a million in the stock market overnight? Maybe in your dreams, but let’s face it: Warren Buffet is in a league of his own. The truth is, investing in the stock market is a meandering path to money growth, not a quick sprint to a bag of cash at the finish line. Before you dip your toes into the stock market ocean, here are the 10 amateur investing mistakes to avoid:
Jumping in before doing your homework
Plain and simple, look before you leap. While you shouldn’t expect to become an overnight expert, it’s vital that you learn the basics of investing before you begin. Instead of buying the first stocks that catch your eye, pick up a few books and learn the ins and outs of investing before your first dollar goes into the stock market.
Playing without rules
Once you know the basics, make your investment plan. Set rules and limits for yourself so you know if and when the time comes to cut your losses. While you don’t want to invest more than you can afford to lose, setting rules before you begin allows you to invest with more confidence because you know there’s a specific number that will tell you when to exit a specific investment.
Trying to get rich quick
Contrary to popular belief, the stock market will not make you a millionaire overnight. If something looks too good to be true, it probably is. Make one, five and ten year plans and try to project where you want your portfolio growth to be when each plan ends.
Not knowing your risk profile
Be honest with yourself, and decide what type of investor you are in regards to taking risks. If you tend to lose sleep worrying about your stock fluctuations, choose less volatile investments. If you don’t break out in a sweat every time the market bounces you may be ready to invest more aggressively.
Ignoring your portfolio
Don’t expect to invest and forget. Once you purchase your portfolio of stocks, check it at least once a quarter and fine tune your investments. While you may decide not to make any changes, you’ll begin to see cycles and long-term growth or loss of each stock you own.
Failure to diversify
Don’t put all your eggs into one basket. No matter how good a certain stock looks, the key to money growth in stocks is to diversify. Let’s face it, get-rich stocks like Apple are few and far between. Instead of investing heavily in one stock, reevaluate it periodically and reinvest your gains if you feel the growth potential is strong.
Giving in to media hysteria
We’ve all seen it: stocks plummet due to a news event, and the media goes into a feeding frenzy of doom and gloom. Take a deep breath and remember, you’re in for the long haul. Instead of giving in to market hysteria, sit back and analyze what’s happening and how it might affect your portfolio in terms of years, not days.
Acting on stock tips
If you mention starting a stock portfolio, everyone with a toe in the market becomes an expert. It’s okay to listen to what the other guy is doing with his money, just remember to do your own research instead of acting on tips or impulses. If you can’t resist a hot tip, set aside a certain amount in your portfolio for impulse buys so you don’t lose more than you can afford.
Selling too soon
Stocks fluctuate. Be prepared to ride out the lows, rather than selling as soon as a stock begins to dip. This is where your investment plan comes in handy: refer to the rules you set initially, and don’t panic and sell too soon. Remember, your stock portfolio is an investment of years, not weeks or months.
Ah, the other side to the evil coin—know when it’s time to fold. If a stock is tanking, the company has begun bankruptcy proceedings, and the CEO has departed for places unknown, don’t smile in the face of defeat. Knowing when to cut your losses and walk may be the most important lesson every investor needs to learn.
What are some other common investing mistakes out there?