Tuesday, 3 December 2019

Investing Mistakes Beginners Make In The Stock Market

I'm going to share 6 investing mistakes that people are making that can end up costing you thousands of dollars and sadly these are mistakes that many people can end up falling into. I've made many of these mistakes in the past and it's important to understand how these work and how you can prevent these so that you can save a lot of money in the process.

Let's Get Started

1. Trusting Experts Too Much

We're talking about stock markets gurus, people on forums, even people who have Youtube channels. Who is telling you to buy this stock or sell this stock, I think that's something you want to be very careful of. If you see in the news that Warren Buffett is buying American Airlines or he's buying Southwest Airlines Stock or he's selling Apple stock, you shouldn't necessarily be buying or selling something just because a very good investor at the top is doing that as well. Because in some cases they can be wrong and they might have a winning track record, but you really want to think for yourself and try not to follow the crowd too much, but rather make sure you are able to understand the logic behind it rather than just following other people.

2. Timing The Market

The problem comes in when people trying to time the market too much to the point where they end up missing out because they end up never investing. They say well, it's 2012, we had a recession a few years ago but I'm worried that we're going to enter another recession so I'm going to wait, I'm going to wait until the market goes down further and then I'll start investing. And then 2013 happens they say the same thing, 2014, 2015, 2016, we're all the way up in 2019 almost 2020 and people are still holding up waiting to invest in the market for the perfect time. Which is very difficult to actually predict. You also want to understand that regardless of where the economy is at the moment, there are going to be companies that are performing very well and companies that are not doing very well. Try to find companies that are valuable, that are within this mix and it's getting more difficult to do that as the markets are rising but they still do exist, you can find an undervalued company in any market and that is really the key to finding success. 

3. Speculation

Let's talk about one of the first mistakes that so many people make and this is a very common, this is something that I was susceptible to when I first started investing and it was essentially not understanding the difference between gambling versus investing. I think a lot of people when they start and maybe this isn't you but I know for myself when I started investing, I was really speculating rather than making logical investments based off the statistics and based off of numbers but rather looking at my emotions thinking about how much money I could make in thinking about the hype of a certain product, stock or a company that you might be investing into. That's one of the first tips there, to make sure that you understand the difference between speculation and investing. The whole purpose of investing is to minimize as much risk as possible while at the same time maximizing as much return as possible. that's the whole point of that.

4. Too Much Risk

Investing the money that you can not afford to lose. This is incredibly important and I have to say I'm not a financial advisor here this is just free information so you need to make sure that you're doing your own research, but investing money that you can't afford to lose. This is a very terrible mistake that so many people are making, what we're talking about here is either you're borrowing money to invest in the stock market because you think you can make a lot of money which maybe you can, but in some cases, you might not. If you are borrowing money from someone else so that you can invest, that's a terrible decision in most cases, you should not be investing the money that you need for next month's rent, that you absolutely need to pay your bills, you shouldn't be investing that money all of it into the stock market thinking that you can double that money and the pay off your rent in the future or pay off your credit card bills with the money that you're investing.

If you have a lot of debt, if you're swamped in the high-interest debt like credit card debt or personal loans, anything in the double digits in terms of interest rates, then you might want to consider paying that all first or at least getting a hold on that before you start investing into the markets. I think that's one of the worst positions that people can get in, once they start to find themselves in debt they say what's a great way to get out of this maybe I can invest into penny stock or invest into hot stocks and then I can take this money from the stock market that I make and then pay off my debt.

That is not a good plan it's almost always going to be putting you in not only a very stressful position but something that can end up really hurting you in the long run. So make sure you are limiting risk to maximize your reward by not investing too much money that you cannot afford to lose. If you've already got your expense covered, if you're able to pay for your rent, you're able to pay for your electricity bill and your car payment and maybe some of your credit card payments and you want to start investing in the stock market then that can be a great option.

5. Waiting To Invest

A mistake that people make which is that they end up waiting far too long to start investing in the markets. We just said that you want to be careful that you're not investing money that you cannot afford to lose. but I also want to mention that I think it's important for everyone if you are interested in growing wealth over your lifetime to consider getting your feet wet in the markets even if you do find yourself in a position where you don't have a lot of money at the moment. Even if you do have some debt I think it's a great idea to get your feet wet, and we're talking about $5 a week, $10 a week invested into the markets so that you can get a better understanding. Because one of the best ways to learn about investing whether you're investing in bonds, CDs, stock market, or real estate, one of the best ways to do this besides reading books and learning free information like this article, is to have the experience.

  • Try things possibly fail, possibly win, but end up over the long term gaining a lot of wisdom when it comes to the markets. The longer you are investing, the more you learn, the more mistakes you make, but then the more you learn from those mistakes and you don't make them again, and it makes you a much better investor from what we've found. That's something you do want to consider, just getting started very small.

6. Paying Too Many Fees For Investing

Back in the day, you used to call up your stock broker and say hey I want to sell, I want to buy or go into your financial institution to buy and sell stocks, or investment or mutual funds then it comes changed to etrade or TD Ameritrade when you may be paying $10 for every time you're buying or selling stocks. But now we've entered sort of this new phase where investing should be free in terms of fees. If you are paying too much in fees look at how much you're paying not only with buying and selling stocks or ETFs or mutual funds but also look at these rates that you're paying for these mutual funds or ETF, there's something called an expense ratio on these different funds so you might see something where it costs you 1% or ½% for someone to manage this fund for you, we're talking specifically about mutual funds, ETFs and index funds might have some type of expense ratio or fee that they might have on there, a management fee.

Try not to pay too much. I really don't like to have expense ratios or those management fees anywhere above a quarter percent, half a percent, obviously, there are some funds that do take a lot effort, a lot more work going into them actively managed so they could require higher fees, but generally speaking I really try to avoid as many fees as possible when it comes to investing.

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