There are very few sure things when it comes to investments. Even those who have the power to influence the market, occasionally get on the wrong side of a trend or make a bad prediction. Investing is about risk, sometimes those risks pay off and sometimes they don’t. But the risk is necessary and because it can’t be avoided, it needs to be managed. Usually through diversification, analysis, and strategic investing. There are several reasons why people fail while managing their own investments. Emotion, lack of planning, inattention, and impatience, are usually the cause. Investing is something that should be done with money you can afford to lose, at least at first. But it is best handled by people whose business it is to make other people rich.
- No Plan: Business is business, you can’t get anyone to invest in you without a plan, why would you invest in yourself if you don’t know what you want. If you are starting an investment portfolio. You should first consider what your goals are, and what sort of schedule you are looking at. When are you going to retire, and what about college, and property, and leaving things behind? One of the best reasons to consider managed funds instead of investing directly, is to get help with the aspect of planning.
- Emotion: Investing with your heart is like going to the casino. The worst reason to invest in a stock or fund is because of some emotional attachment, or a hunch. It is a gamble, pure and simple. Like throwing a dart or rolling the dice. Usually there is a little more involved, like the investor read an article that was very upbeat, and it played into the person’s confirmation bias.
- No Oversight: Another mistake people make is starting a portfolio and forgetting about it. The world changes fast, and over the years, investment opportunities come and go. Inattention is one of the best ways to minimis-e your investment potential. This is something that is avoided by having a money manager.
- Impatience: Moving your money from place to place every time there is a shift in the market is a good way to make sure that you never see a return. Sometimes investing requires some courage and a determination to ride out the dips. Historically speaking, sticking with an investment is a better strategy than trying to predict market movement.
- Following: Just because everyone is doing it, doesn’t make it a good idea. Your mom probably taught you that, regarding smoking or some other unsafe activity. But it applies just as well to investments. Following the crowd is just another version of investing without a plan. You need to consider your goals and the particulars of your portfolio.
To be a successful investor requires a good strategy, awareness, common sense, scepticism, and a determination to stand your ground. If you have the right plan, which is diversified and balanced with low cost investments. You still need to be able to adjust, while avoiding changes based on emotion or peer pressure. This is something that can be done, but you need to consider your portfolio like a business you own. Do this, and you will avoid some of the more common errors.