A new study conducted by Natixis has identified the 8 biggest and most expensive mistakes about the stock investment that financial experts believe you can make.
1. Panic selling
93% of financial professionals identify “panic selling” as the top investment mistake. When you see your account balances start to plummet or the economy starts to wobble, it’s hard to avoid making bad decisions while fearing you’ll lose everything.
Unfortunately, selling while things are getting tougher is the perfect recipe for disaster. Often, you will end up selling at the bottom and miss out on the opportunity to benefit from the usual rally after a market correction.
The good news is that you can easily avoid this mistake with a solid investment strategy. If you are confident in your investment, “throw” your portfolio aside when the market wobbles to avoid thoughts that urge you to sell. Or better yet, follow Warren Buffett’s advice: be greedy when others are fearful.
2. Try to guess the exact time
On the surface, setting targets to buy at the bottom and sell at the top is a perfect strategy. But the problem here is that most people cannot predict exactly when the price will bottom or peak. And even if you only miss a few opportunities, the damage is not small.
That’s why 50% of the financial professionals who took part in the survey listed “trying to guess the exact time” as the top mistake. However, this error is easy to avoid. The dollar-cost averaging (DCA) strategy, which means regularly buying a certain amount of stock on a predetermined schedule over a relatively long period, is an option.
3. Not understanding your risk tolerance
The greater the risk, the higher the profit potential. However, 45% of financial professionals surveyed said that not understanding their risk tolerance is a mistake that many investors often make.
You’ll have to carefully calculate how much risk you’re willing to accept before deciding how much to invest in stocks (an asset class that carries a high level of risk but also offers an opportunity to earn high returns). high yield; Should you choose to invest in an index fund or pick out a few individual stocks to increase your probability of beating the market?
Risk tolerance is something that should change over time. Before investing, study this issue carefully and let it guide your investment strategy.
4. Set unrealistic expectations
Make reasonable expectations about how much money you will earn on your investment. If you expect a return of 20%/year, you have to put in a lot more work than just 2%/year.
To avoid this mistake, look at your investment history and research the stocks you’re targeting to gauge the true potential of your portfolio.
5. Taking too much risk in pursuit of yield
While many investors misunderstand their risk tolerance, many take too much risk and gamble with the future. If you invest in assets that are too risky or pour too much money into the market, you run the risk of huge losses if anything goes against your predictions.
To avoid this mistake, be sure to allocate your portfolio and set the right level of risk for your age and goals. For example, if you invest to earn extra income for your retirement, subtract your age from 110 to decide what percentage of the portfolio should be in stocks.
6. Not realizing the over-excitability of the market
This is the opposite of panic selling, and 25% of the financial experts surveyed think this is a very expensive mistake.
When investors get too excited because everything seems to be going up in price, the price will go up continuously without a period of correction. You could easily get caught in a bubble and have a portfolio full of stocks that are overpriced for what they’re worth.
However, the good news is that a CDA along with a smart investment strategy that focuses on the core of your business will help you avoid this mistake.
7. Focus on cost instead of value
Many investors focus too much on the price of a stock without carefully researching how much the stock is worth.
This often leads to the false belief that penny stocks are a bargain, whether it’s a company that does poorly or doesn’t publish transparent financial data. This is also the reason why inexperienced investors appreciate a stock just because its price is high.
Look at the price history, company leadership, competitive advantages, and growth potential when evaluating a company.
8. Taxes are not taken into account when selecting stock investment
Investors may miss the opportunity to take advantage of tax incentives if they make this mistake. And the way to avoid it is to thoroughly understand the tax laws.