If you’re just getting started with investing, you may be prone to some rookie investment mistakes. Because the world of finance is often counter-intuitive of our emotions and gut reactions, it’s easy to get caught up in irrational decision-making when it comes to long-term investing.
Thankfully, many of the rookie investment mistakes can be avoided by planning ahead. Here are some focal points on the common mistakes to avoid:
Chasing a hot stock
When a “golden goose” investment presents itself in the media, it can be incredibly tempting to concentrate your wealth into a “surefire” winner. Granted, you may have a once in a blue moon winning stock pick, but timing the market rarely works out for the average investor. The truth is that choosing one asset class or investment is more akin to gambling than it is smart investing.
Instead, you should highly consider a diversified, long-term approach, which can result in similar (or greater) returns, with lessened risk.
Panicking
Even the best laid-out investment plan will be subject to market volatility and downturns. Often, your emotions will also be subject to panic during these times – after all, when your hard earned wealth is dropping – albeit temporarily – it can seem terrifying.
Wise investors, however, realize that temporary drops in the market shouldn’t influence their long-term plan. Instead, they keep their eyes on the data, knowing that over longer time-frames, the market has always recovered from losses and steadily gained value.
Too short of a time horizon
Another one of the big rookie investing mistakes to avoid is having too short of a time frame to have your wealth grow. By nature, long-term investing involves allowing your wealth to grow steadily, rather than trying to churn a quick profit.
Instead of following this flawed timeline, wise investors have a financial roadmap. They anticipate their short-term financial needs, and have an emergency fund in place for the unexpected. They know that allowing their wealth to grow over a long-time horizon can be more financially rewarding than seeking temporary gains and attempting to time the market.
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