Investment means to obtain an additional source of income or gain profit from the investment over a specific period of time. In these modern times, knowing how to invest is such a key, as investing money is a skill and mistakes are bound to happen while learning a new skill. However, while dealing with money, the consequences could well be severe. Hence, it is advised not to make those mistakes in the very first place.
In this blog, we will let you know about the major mistakes a good investor must stay away from.
Above all, let's have a look at some of the basic types of Investments, i.e., the tools that can help you achieve your financial goals.
It's basically a term to define your share in a company or corporation. When you invest in a stock, you start owning a share of that particular company, depending upon the amount of your stock. Similarly, your profit or loss depends directly upon the success or failure of that company.
A Bond is a loan in exchange for interest payments over a specific period of time. This loan is made by investors to the company.
Mutual Funds and ETFs
A mutual fund is a professionally managed investment scheme that invests in securities such as stocks, bonds, money market instruments, and other assets using a pool of money collected from several investors.
ETFs exchange-traded funds that generally track a certain index. When you invest in an ETF, you receive a collection of assets that you can purchase and sell during market hours, so possibly reducing your risk and exposure and diversifying your portfolio.
Initial Coin Offerings and Cryptocurrencies
It's a digital world and digital assets like cryptocurrencies and ICOs are evolving rapidly in the market. They are getting a huge amount of interest from traditional investors as well, and there's a good reason for that. Billions of dollars have been raised through ICO financings and over a thousand different cryptocurrencies are currently available in the market, which makes it highly tempting for investors.
It is a contract between the person insured and the insurance company under which the insured's financial risk is covered. The danger may be to your automobile, property, legal matters, etc.
Not having a fair idea of the Investment
Whenever you are investing in stocks of a particular company, always make sure you thoroughly understand the dynamics of those stocks. You should also research the patterns of previous performances of those stocks and consider the expert predictions for the future. All in all, your investment in a particular stock should be backed by perfect research. Warren Buffet, widely regarded as one of the most successful investors once claimed, "You should always be cautious before investing in companies whose business models you don't understand."
Lack of Patience
Probably the biggest mistake one can make as an investor, is to show a lack of patience. A slow and steady approach to portfolio growth has a much higher chance of yielding greater returns in the long run. Expecting rapid growth in a quick time quick time only brings disappointment. An investor needs to keep his/her expectations as realistic as possible, regarding the timeline of a portfolio's growth and returns.
Attempt to time the Market in terms of Results
Timing the market is a well-known strategy for making decisions regarding buying or selling financial assets by predicting future market prices. Timing the market is pretty similar to expecting the world to be 'ideal'. It is a desire but it's nearly impossible. Attempting to time the market often kills the returns, as successfully timing the market is extremely difficult. Even established investors often fail to do it successfully. Over the years, through various market studies, it has been proved several times that most of a portfolio's return can be influenced by the asset allocation decisions you make, not by attempting to time the market.
Not evaluating your risk tolerance profile
One's capacity for risk dictates where to invest. The risk-averse investor invests in low- or moderate-risk assets, such as debt instruments, fixed deposits, balanced mutual funds, etc. The strategy is geared toward capital preservation or regular cash flow generation. The aggressive investor, on the other hand, invests the majority of his portfolio in highly volatile instruments in order to gain larger returns by incurring substantial risks.
Always expecting huge profits from investment
Asset prices are in constant flux. Sometimes these fluctuations are illogical, and other times they are the result of macroeconomic events. As a result of huge investment banks speeding toward insolvency, for instance, there may be a widespread devaluation of stocks. These institutions may need to sell everything as rapidly as possible in order to obtain cash. Additionally, real estate prices vary, with prices falling and then rising again.
So, these were the potential mistakes an investor is prone to make, particularly at the start of their investing journey. In this blog, we have given our advice regarding the 3 biggest mistakes an Investor should stay away from. We hope you find it useful.
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