Avoid Two Common Investing Mistakes

 In Investing

Avoid Two Common Investing Mistakes

We constantly hear people around us talking about investing, what they’re investing in, what the next hot stock may be, attempting to hear “the secret.” However, it’s all too easy to make mistakes based on what we hear. It’s imperative to remember the most important aspect of investing is doing what’s best for you and your situation.

The first thing to ask yourself is, am I ready to invest? While you may be eager to jump right in and attempt to catch a large profit, it’s crucial to take a big-picture approach. For example, if you carry quite a bit of debt or your job stability is a tad shaky it may not be the time to invest in the hottest up and coming technology stock that you “know” is going to take off and pull you out of debt. The main focus here is the necessity for well-funded savings and available cash to have in case of an emergency. If you suddenly lost your job or got in a serious accident and had all your savings in a risky investment, you can find yourself in a deeper hole than where you started. A good rule of thumb to follow is to have at least six months to one year of living expenses on hand to cover you in case things turn south. Slow down, look at the big picture and truly ask yourself, “am I ready to invest? No matter what situation pops up?”

Jumping into investments before you’re ready can also lead to a second mistake, investing without goals. Don’t invest just for the simple fact of investing. Have a rational reason for why this particular investment may suit you. All investments have targets attached to them. For example, inverse leveraged ETF’s carry large amounts of risk and strive to achieve large returns whereas money market funds attempt to preserve your money and grow it at a small rate. Again, we find ourselves looking at the big picture and asking ourselves what our goals are. They can be short-term, long-term, or anywhere in the middle, and it’s also important to reevaluate them because goals change as we progress through our lives (i.e. saving for child’s education, buying a home, or retirement).

Asking ourselves these simple questions is often an overlooked part of the investment process but can truly be the most important aspect to help us avoid common mistakes. It’s imperative to always make sure we are in a safe enough financial position to go ahead and make investments, and when we do decide to invest, making the investment that aligns with our goals.

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