Investing Beginners Mistakes Which Should Be Avoided At All Costs

Investing Beginners Mistakes Which Should be Avoided at All Costs

Investing is both an art form and a science. While success requires a great deal of skill and experience, appreciating some common mistakes to avoid along the way will help to ensure success in the future. Let us therefore quickly examine a handful of pitfalls to take into account.

Failing to Set Clear and Realistic Goals

What are the main intentions of an investment opportunity? Is this strategy intended to produce a short-term profit or is it instead designed to accrue long-term wealth in the form of a "nest egg"? Answering this fundamental question will provide the insight and clarity required to make informed decisions in regards to which assets are the most suited. Furthermore, it is important to ensure that the goals themselves are realistic. It normally takes years or even decades to accrue a sustainable side income. Thus, patience is indeed a virtue.

Not Appreciating the Importance of Diversification

A diverse portfolio is one that will be able to rise above any open-market volatility. Some investing beginners mistakes involve the fact that the individual in question fails to embrace the notion of diversification. If 90 percent of one's holdings are within a single asset class, a great deal of money could be lost in the event that the sector itself experiences a downturn. One pertinent example can be seen in the price of oil over the past few years. A balanced portfolio will be able to avoid such a situation. Here is an example of what is considered to represent a diversified set of holdings:
  • Blue-chip stocks (20 percent)
  • Commodities (20 percent)
  • Bonds and treasuries (20 percent)
  • Real estate (30 percent)
  • Liquid positions such as Forex holdings (10 percent)
Of course, the exact type of assets will depend upon the needs of the investor in question.

Allowing Emotions to Supersede Common Sense

In terms of investing beginners mistakes, emotion plays another crucial role. Many novice traders allow their feelings to overtake common sense. These two emotions can generally be classified as greed and fear. Those who become greedy are likely to abandon common sense in favor of a short-term profit. Investors who are afraid could fail to capitalize upon a potentially lucrative opportunity. This is why it is best to maintain what can only be called a pragmatic approach. Sound and objective decisions can therefore be made at the appropriate times.

The Inability to Accept Losses from Time to Time

Losses can and will occur within the world of investing. Even massively successful personalities such as Warren Buffett have made errors on occasion. Those who are unwilling to accept the fact that mistakes are natural will never be able to grow from such experiences. It is much better to learn from such situations in order to further hone one's skills. After all, every investment represents a calculated risk to a certain degree. These are some of the most prevalent investing beginners mistakes to recognize from the beginning. Those who are able to avoid such errors will place themselves on the road to success while enjoying all that this incredible hobby has to offer.