Think you’re on the path to investment success? Even with the right tools, you could be falling into a common investment trap that could hinder your success. There are numerous ways to invest your money and almost an equal number of possible mistakes that can be made. Learn from the missteps of others by working to avoid these five common investment mistakes.
1. Not Sticking with the Plan
Successful investors don’t just sit down and start making trades at random—they have a well thought out plan and a detailed trading strategy. It can sometimes take time for the plan to pay off, and the meantime is when many novice traders start to doubt their strategy. When you stray from the plan, you add emotion into your investing, which is one of the most unpredictable and dangerous things you could do. Your plan should be firm enough that you know exactly what to do and aren’t swayed by emotion, but it should also be flexible enough that you have a clear path of what to do in response to market trends.
2. Being an Impulsive Investor
With so many investment options available, it’s easy to believe that the grass is greener on the other side, especially when comparing long-term growth prospects to quick turnaround funds. Many people tend to buy high and sell low because they are impatient and impulsive, which means they aren’t getting the maximum value from their funds. Investing means riding the market waves and sticking with your goals. The most successful investors don’t buy and sell with every rumor or market shake that comes through. Stick with your investment plan and do your research to learn how much concern you should put into various trends or news stories.
3. Being Close-minded
Although having a plan you follow is incredibly important, the best investors realize that their plan will evolve over time. Your initial plan is simply a starting spot that allows you to tailor your investment strategy as you get more experience. You may think you are a good trader and want to stick to your guns and your strategy, but not being open to change and new ideas can be the downfall of many investors. The markets are constantly changing, which means your approach and view needs to evolve as well. The best investors are always learning new things and applying that to their trades, which allows them to stay on top of the market and have continued success. Be open to advice from trusted colleagues and find a sounding board and information source you trust.
4. Losing Focus
Successful investing is a long-term game, which means you can’t just throw money at something and expect it to provide great returns with little effort. In fact, an alarming number of investors are unknowingly paying account fees because they aren’t meeting the minimum requirements or paying attention to their funds. The market can change quickly, which means that if you are constantly paying attention and evaluating market conditions, you could miss out on a big opportunity or get swept up in the change. When trading, avoid as many distractions as possible and stay focused with a clear mind of your strategy and overall goals. Regularly check in with all of your accounts, including the safer, more hands-off funds, to make sure you are aware of where your money is and what it is doing. Start investing with a clear goal in mind and remind yourself of that when you are tempted to lose focus.
5. Falling into Confirmation Bias
Confirmation bias happens when investors give greater weight to reports or analysis that confirms their existing ideas and plans than to news that contradicts their current beliefs. The danger with confirmation basis is that it often happens unconsciously, such as when an investor only looks at reports that their chosen stocks are performing well and ignores analysis that the industry could be headed for a bumpy quarter. To fight against confirmation bias, look for ways to prove your investment thesis is wrong and surround yourself with people and information that challenge your beliefs.