Investing in the stock market could be one of the smartest financial decisions you can make. However, novice and seasoned investors alike are prone to making decisions that will ultimately hurt them more than help them. Financial experts weighed in on some of the biggest mistakes they’ve seen. Here’s how to avoid them:
1. Watching the market like a hawk
Although you’ll probably want to pay some attention to market trends, obsessively watching your investments could actually hurt you. Market fluctuations often lead to investors panicking and making poor or impulsive decisions, so check in on your investments sparingly.
Calmly watching market fluctuations come and go could help you make safer choices with your money. If you’re a long-term investor, consider limiting checking in to once every quarter or biannually.
2. Changing investments to fit trends
Chasing trends is part of the fun for some investors, but it can be a costly mistake. Frenzies often cause people to make decisions based on whatever is popular at the time.
Although GameStop brought itself into day’s day by generational pandemonium, that’s not what most stocks do. If you invest like this, you ultimately run the risk of losing what money you put in or potentially taking on more than you’d actually care to. Create a solid plan and don’t run off of immediate satisfaction.
3. Failing to set clear goals
Your goals should be clear: Do you want to increase savings for retirement? What’s your risk tolerance?
Those are questions best to ask yourself before you invest. They can also help you determine the best strategy and investments for your unique needs.
People who fail to set clear goals for their investments are at risk of making decisions that don’t align with their needs, which could ultimately lead them to taking on unnecessary risks or following a process that won’t get them to where they ultimately hope to be.
4. Not getting help if you need it
It’s not a sin to hire outside experts to help, especially as your savings grow.
A Vanguard study found that, on average, a hypothetical $500,000 investment over 25 years would grow to $1.7 million if you manage it yourself, but more than $3.4 million if you work with a financial advisor. That’s twice as much!
If you’ve got at least $100,000 in investments, check out a free service called SmartAsset. You fill out a short questionnaire and instantly get matched with up to three vetted financial advisors in your area, all legally bound to work in your best interests.
5. Investing money you’ll need soon
Never put money in stocks that you’ll need within 5 years. The market is unpredictable and you’ll need to account for the worst-case scenario.
Ask yourself, “Can I live without this money for a few years?” If the answer is yes, go for it. If not, don’t risk it.
6. Starting too late
Don’t delay investing if you can afford to do it. The sooner you invest, the more time you give potential returns. It doesn’t take a hefty amount of capital to get started. If you can afford to invest, you should.
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