7 Mistakes To Avoid When Investing Your Money
Instead of just saving money in a jar or a checking account, it makes sense to invest it. Investing allows you to grow your money more quickly. Common investment strategies include using high-interest savings accounts, buying and selling stocks, buying and selling currencies and renting out property to tenants.
Of course, there are rules and tricks to investing. Fail to follow these rules and tricks and you could end up reducing the growth of your savings – and possibly even losing money. Below are a few common mistakes that you should avoid when investing your money.
Having no clear goal
Before investing your money, consider why you are investing. Are you trying to grow funds to buy a house in a few years? Or are you setting aside money for your distant retirement? Knowing what your goal is can help you to invest your money in the right places. High-growth strategies may be better for short-term investment goals, while slower and more stable strategies are often better suited to long-term investment goals. By knowing your goal, you can also avoid taking your money out too soon.
Failing to diversify
Diversifying is the philosophy of ‘not putting all your eggs in one basket’. Instead of investing your money into one stock or one cryptocurrency, it’s much safer to invest in multiple stocks and multiple cryptocurrencies. If you’ve invested in one company and that company goes bankrupt due to an unforeseen disaster, you’ve lost all your money. If you invest in twenty stocks from a range of different industries, it’s highly unlikely all those companies are going to crash and go bankrupt unless there’s a worldwide apocalypse.
Investing in things you don’t understand
You should only ever invest in things that you have a good understanding of – otherwise you’re just gambling. This includes investing in a stock that’s on the rise without knowing anything about the company or investing in a painting without knowing anything about the artist. On top of knowing what you’re investing in, try to familiarise yourself with all the right investing terms within your area of focus. For instance, if you’re investing in cryptocurrency, make sure you understand terms like ‘blockchain’, ‘mining’ and ‘digital wallet’.
Being too hands-off
It’s important to periodically monitor your investments, especially if you’ve opted for an investment strategy that requires you to fully take the reins such as checkbook control with a self-directed IRA or buy-to-let property rental without a property manager. Even if you do decide to hire a broker to choose where to invest your money, you should still keep an eye on this broker to make sure they’re handling your investment properly. If you’ve put your money into a savings account, it’s still worth keeping an eye on the interest rate – and other interest rates that other banks may be offering.
Getting too attached to investments
It’s possible to get attached to investments – and then cling onto them instead of selling them when you need to. This is common with collectibles, but it can also happen with other investments such as a stock you’ve been investing in for 20 years. Once you’ve reached your investment goal, make sure to sell up so that you can spend it as intended.
Trying to time the market
The basic rule of investing is to buy low and sell high. Timing the market involves investing in something when it is at its lowest price and then trying to sell it at its highest value. This can be very hard to pull off with volatile investments such as certain stocks and cryptocurrencies – it’s all too easy to wait an extra day for a cryptocurrency to rise in value only for it to plummet. Unless you’re able to thoroughly study your investments and keep a constant eye on market prices, don’t attempt to precisely time the market.
Failing to secure your funds properly
There are lots of fraudsters and thieves out there that you need to be careful of when investing. When investing in collectibles or digital assets, make sure to buy from trusted sellers and platforms. Store your investments in a secure place, whether it be storing gold in a vault or IRA (source: www.raremetalblog.com/goldco/) or cryptocurrency in a digital wallet.” When it comes to investment accounts, be wary of scammers posing as banks and brokers (you should be particularly wary of strangers that contact you out of the blue – especially if they start asking for sensitive information over the phone or email).