If you want to learn something, don’t be afraid to make a few mistakes along the way. However, it is common sense that separates a poor investor from a successful one. The fact is that almost all investors, whether new or experienced, have made some mistakes during their investment journey.It is impossible to be perfect, but if you know and learn from some investing mistakes beforehand, you can avoid huge losses. Here are some of the mistakes that people make while investing in stocks and property and how you can avoid them.
People Use Too Much Margin
Margin is the borrowed money that is used to purchase securities. With margin, you can make more money, and with margin only, you can also lose all the money you have. Being a new investor, you may get carried away with this free money. If your investment doesn’t go the way you want, you may end up with a large debt to pay.
- As one never opts to buy stocks from a credit card, you should know that it’s the same with margin.
- Margin requires frequent and close monitoring of standing positions as any little price fluctuation may exaggerate profits and losses.
- A new investor should use the margin carefully, considering all the risks associated with it.
- You may be forced to sell your positions at the bottom, the point when the market turns big.
Buying Cheap Looking Stocks
It is a common mistake that most people do. They compare the price of the share with its 52-week performance, and when finding it lower or higher, they invest.
- You should check the fundamentals also, situations like a CEO resignation or an increase in competition may prevent an increase in the stock price. A clear and critical analysis needed before investing in shares because the share price may be a false buy signal.
- Avoid buying shares that look like an unbelievably good bargain.
- Before investing, do proper homework and analyze wisely.
Compounding the Losses by Averaging Down
Most people fail to accept their mistakes and continue holding onto their losing investment. To make matters worse, some people continue buying more shares at the lower price and average down.
- Always remember that the company’s future performance is not related to its price.
- If you see a sharp decrease in the stock price, determine the reasons behind it and accordingly decide to invest or not.
- Keep your pride away and make sound investment decisions so that your portfolio’s value shouldn’t decimate.
- During losses, act appropriately and remain rational.
Lack of Proper Research
Before purchasing a television or car, you compare different models and ask various questions to determine whether the purchase is worth every penny spent. Similarly, you should do proper research before investing in property.
The buyer should consider the following things before investing in a property:
- Presence of property near a commercial site.
- Location¾the property should be clear of the flood zone or other problematic areas.
- Internal/external conditions like termites or unwanted wildlife.
- The reason behind the owner selling the property.
- The condition of the structure and if any additional construction is required.
Doing Everything on Your Own
Most buyers think that they know everything and are capable of handling the transactions on their own. You might have well-executed deals in the past, but when the market is down, it doesn’t go smoothly.
- When investing in property, befriend experts and tap every possible resource which can help in making the right purchase.
- Build a relationship with a property agent, a competent home inspector, a good attorney, an insurance representative, a mortgage lender (like the experts at OnQFinancial), and a handyman.
- They will be able to inform and alert you about any flaws in the property or neighborhood.
There are many expenses attached when buying a property¾such as mortgage payments. With renting, you may face maintenance expenses like painting the shed, mowing the lawn and tending the garden. There are costs associated with furnishings, keeping all the appliances working, making structural changes and paying the insurance and property taxes.
- The first-time investors do not consider all these things, and in the end, they tend to be cash poor or house poor.
- You should make a list of all the expenses and costs you will incur while buying the property.
- When you add all those expenses, you will have the idea whether you can afford the property or not.
These are some of the key mistakes that people make while investing. The fact is that if investing in stocks or property would be that easy, everyone would be doing it. Fortunately, most of the mistakes can be avoided if the above points are considered before making any decision.
Simon is a professional finance and mortgage expert who’s had years of experience working in the industry. He currently writes for ONQfinancial.com and is dedicated to helping people find the best home loan options for their needs. In his spare time, he likes to travel.