Over the years you get to know what works and what doesn’t when it comes to investing. This knowledge normally comes by making mistakes. So this week I want to look at the top 14 investing mistakes and some ideas on how to avoid them.
I’ve made most of these mistakes so I can speak with some experience…
You won’t find anything in this list related to actual investing strategies. That is because the most important part of your investing success is YOU…
The investment strategies come after you have mastered your money mindset. That way success is more likely to be yours.
So let’s get into…
The Top 14 Investing Mistakes.
Not having a plan
This seems like a straightforward concept, yet as I have mentioned previously in this blog, planning for your future and your investing success is not a common practice of those striving to achieve better results.
On the other hand, the successful and wealthy have planned every step of their journey. They know exactly what they want to do, how they are going to do it, and what tools, resources, and strategies they are going to implement.
It is this attention to detail that separates them from the average investor. They have planned their destiny.
Treating Investing as a hobby
One of the traps for beginners is thinking that you can achieve great results and become the next Richard Branson by spending 5 minutes here and there on investing.
The wealthy know that achieving results takes time, patience, and dedication.
You need to treat your investing like a business, become the CEO of your own finances.
By applying this discipline to your investing you are acknowledging that results come from the investment of your time and money.
Trying to do it all on your own
As the CEO of your finances, you will recognise that the best way to achieve great results is to have a great team around you.
In the investing game, having the right people around you is just as important as it is in the corporate world.
It is therefore imperative that you seek knowledge and assistance from people that can help in areas that you are not an expert.
It is my experience and the basis of my starting The Investor’s Way, that you should take responsibility for your investing activities. Seek the knowledge to be able to make your own decisions.
But this doesn’t mean you have to do everything on your own…
There are great benefits from gathering people around you that can assist. Particularly in tasks that you don’t need to do yourself, like your tax and accounting, or research.
The key is to put yourself in a position, by gaining knowledge, to be able to make informed decisions.
The best CEO’s are those that make decisions based on thorough information of all the possible scenarios…
…and you want to put yourself in this position with your investment decisions.
Just don’t try to do it all on your own.
Not sticking to your plan
The first investing mistake mentioned not having a plan. Even worse than not having a plan, is having one and not sticking to it.
Your plan is your road map and your support…
When there are times of stress, which can and will occur in your investing career, you need something you can refer to that assists your decision-making.
A good plan will provide that support.
Imagine being in a property negotiation where numbers are flying around at a rapid rate, how will you know that the deal is worth taking, or when it is time to walk away?
A good plan will provide you the decision-making support, all you have to do is stick to it…
Trying to use someone else’s strategies
This is one of those mistakes that will have you pulling your hair out if you ever find yourself making this mistake.
I can speak with authority on this subject, having tried to use other people’s strategies with no success. The problem with trying to use someone else’s strategies is that they are not based on your money mindset.
You will have different attitudes about money, different risk tolerances, different short, medium, and long-term goals, and potentially a completely different approach to investing.
If you put all these factors into an equation it is little wonder that using somebody else’s systems won’t work.
Again, it comes back to the main philosophy of The Investor’s Way, which is to gain knowledge on how to invest and develop your own strategies from this knowledge.
You can get this knowledge by starting here.
Blaming others for your mistakes
If we come back to the notion that you are the CEO of your own finances, then you will know that the buck stops with you.
Every CEO knows, as do their employees, that the CEO is ultimately responsible for the success or failure of their entity.
Your investing success is no different.
Nobody else can be responsible for your outcomes, because you make the decisions.
You apply the systems and strategies you outline in your plan, and therefore you take the credit when things go well, and you take the blame when mistakes are made, simple as that.
Don’t be the victim, and don’t fall into the trap of blaming others for your choices.
Trying to get rich quickly
I’ve written about this previously as well. The simple fact is, nobody gets rich quickly.
Successful investing takes time and dedication. Simple as that…
Failing to manage risk
Management of risk is a key item of your planning process.
Understand that everybody has a different tolerance for risk…
When you first start out, losing $1,000 on a stock trade could be very significant and potentially painful. However, as you build your asset base, $1,000 will take on a different perspective.
The crucial aspect of this mistake is understanding that ALL investing involves some element of risk.
Your task is to identify how you will manage it. I have discussed this topic in more detail here.
Making half-hearted decisions
When you decide to become an investor, you want to make sure you do it wholeheartedly.
As suggested in mistake number 2, you want to treat investing as a business. When in business, you also must ensure that your decision-making is ‘all in’.
The financial markets, whether it be property or stocks, have a tendency to punish those that make half-baked decisions or decisions that you aren’t fully committed to.
If you are not fully committed to a decision then wait, gather what is required to become fully committed, otherwise make the decision not to proceed.
Stopping due to a fear of losing money
This is a common mistake of the beginner…
As I have mentioned already, investing takes time, and inevitably will involve losses.
However, if you have followed the suggested ways to avoid these common investing mistakes, you will know that having a plan and managing risk are two key habits of the wealthy.
They know that there is a possibility of loss, but they still proceed to take action.
Success requires action, so put the plans in place to manage losses and don’t let fear stop you. Fear is just false evidence appearing real.
Wasting energy on matters out of your control
Modern society seems to have created this scenario where we worry about almost everything.
The biggest mistake, in my opinion, in terms of investing, is worrying about things that are outside of your control.
The stock market doesn’t know you are in a stock, so worrying about whether it is going up today or tomorrow is a complete waste of energy.
Having your plan in place and systems operating is your support mechanism. Let everything else take care of itself.
You can’t control what the markets are going to do, and you certainly can’t control what other people are going to do in these markets.
Just have the confidence that your systems and strategies will work over time and concentrate on what you can control – your decisions, and actions…
Stress has a powerful impact on your ability to make decisions…
Making investing decisions when stressed can lead to mistakes and poor decisions.
Recognise when you are stressed and ensure you pause. Allow yourself the time to regain composure, and then proceed.
This could take minutes, hours, or days, just give it the time it requires.
Making impulse decisions
This mistake needs to be carefully considered with mistake number 10.
Investing is not a life or death decision, it is rare that you will need to make a decision in an instant.
Give yourself the time required to do the necessary research and make an informed decision.
BUT, don’t get caught in the trap of continual research looking for the perfect investment. There is no such thing.
So, as with mistake number 10, you need to make decisions, carefully. The key is to make them from an informed position.
Failing to diversify
Diversification is a topic for an entire blog, and possibly more than one…
In the context of investing mistakes, let’s say that you need to avoid having all your eggs in one basket.
There are many forms of diversification that go beyond the scope of this blog post but simply put, to avoid this mistake you want to consider multiple investment categories and time frames to diversify your risk.
For example, you can invest in the stock market and achieve diversification by investing in more than one stock, or more than one sector of the market, or use different time frames for investment decisions, that is, daily, weekly or intra-day data.
So there are 14 investing mistakes and how to avoid them. Choose one or two that might apply to you and look to implement steps to avoid them, and then once comfortable that you have kicked those mistakes to the curb, move onto another two.
Your investing business will thank you for it.