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Mistakes to Avoid for Budding Investors
Common Mistakes to Avoid for Budding Investors
Investing sounds like a dream come true. What’s not to like about sitting back and watching your money grow? You start with a sum of money, and over time it turns into more money.
No, it’s not a trick. Investing is indeed an essential step to growing your wealth and becoming financially sound. And the earlier you learn how to do it, the better.
But before you dive right in, make sure you avoid these mistakes that newbie investors often make.
Putting all your eggs into one basket
Diversify, diversify, diversify. You’ve probably heard that being said before, and for good reason!
No matter how great the returns you get from one particular type of investment, do not put all your money into it! Investing always comes with an element of risk. The higher the risk you take on, the higher your potential returns. However, higher risk could mean losing more than you earn, so be sure not to take on more risk than you can handle.
In order to protect yourself from suffering losses, you should always diversify by investing in a wide range of investment products, and also take care to diversify within an asset class.
For instance, when investing in stocks, never put all your money into one single stock. Instead, you should be investing in a range of stocks across different industries.
One way to diversify your stock investments without needing a lot of cash is through a Blue Chip Investment Plan. For as little as S$100 a month, you will be able to select from 18 different shares, which helps to spread out the risk.
Trying to make a quick buck
Investing is a marathon, not a sprint. Many newbie investors make the mistake of getting preoccupied with the possibility of short-term gains. That’s why so many Singaporeans have fallen prey to gold buyback scams in hopes of getting rich quick.
As you’re still decades away from retirement, you should be investing with the goal of earning gains over the long term. Your youth is an advantage, as you’ve got lots of time to let your investments accrue in value.
Investing for the long term is actually less stressful than speculating and trying to make short-term gains. For instance, investing small amounts in an exchange-traded fund, unit trust or blue chip investment plan is very easy and can even be automated on a monthly basis. You won’t have to worry about the short-term market fluctuations, because you’re in it for the long haul!
Many budding investors don’t realise that investing is essentially a waiting game. You can’t expect to see incredible results within a few months.
But if you continue investing consistently, after a few years you will really see the difference. For instance, if you invest in dividend-yielding stocks and reinvest the dividends, your investment nest egg will grow exponentially, meaning the longer you wait, the faster your wealth will grow.
In addition, the growth potential of any type of investment usually corresponds to how risky it is. If you have decided to stick with low-risk investments, it is important to understand that they might not grow as quickly as riskier ones
To get an accurate idea of how your investments are likely to perform, look into the history of each type of investment. For instance, if you’re buying blue chip stocks, you can check historical charts tracking the prices of stocks on the Singapore Stock Exchange at websites like InvestingNote.com.
Not accounting for fees and costs involved
It’s easy to get excited when you see your money grow. But don’t make the common mistake of forgetting to subtract the fees and costs you’ve paid. You need to do so in order to find out how much you’ve really made.
To avoid this costly mistake, always know what fees and charges you are paying to your bank or brokerage. For instance, if you’re trading shares through a brokerage, you might be charged a fee each time you sell your stocks, which could make very small trades unprofitable.
While investing isn’t something you want to do blindly, it’s not rocket science either! So long as you arm yourself with basic knowledge and know what mistakes to avoid, you’re in a great position to become a full-fledged investor and watch with satisfaction as your money grows.
Kickstart your investing journey with FRANK by OCBC’s range of investment products, designed for young investors at any income level.
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