If you want to make it big you will have to invest at some point in life. Your paycheck will not be enough to get you the yacht you want or the mansion you desire. Investments, however, can double your earnings in a short span of time and help you turn your fortune. But, not all investments are safe, which is why not everyone is making money.
Many investors have to register losses due to some mistakes they committed. And once upon a time, I was one such investor. However, I've matured over the years and now make less mistakes. In this article, I am going to highlight some investment mistakes that I've committed but you shouldn't.
1. Putting All Eggs In One Basket
Investment is a risky business but most of us fail to understand that. We are in a hurry to make money and may end up putting all our hard earned money in one investment option. This is a mistake that can cost us everything, and even losses.
Think about the people who invested all their savings in the British Pound before the Brexit, expecting it to rise. Guaranteed, it was a gamble but one that didn't pay off. With the Pound losing its value, whoever invested in the currency faced losses. The wise decision is to divide the money and invest in different options so that if one investment fails you can cover the losses from other investments. Remember, diversification keeps you safe.You should also a number of brokerage houses.
says Frank Boucher, a certified financial planner in Reston, Va. This is important because you cannot trust one brokerage firm with all your money.
Some investors will say they want to spread their money between several brokers, that they don't want to put all of their eggs in one basket.
2. Not Putting All Eggs In One Basket
Does this point contradict the first statement? Yes, it does. The truth is that at times you have to risk it and put it all on the line, but not without proper calculations. If an investment is guaranteed to give results, there is no reason why you should shy away from investing heavily in it. But, do not be greedy and play safe. It's not wise to ask for loans or sell your assets. I once sold my car to invest in stocks that crashed, and I was without a ride for a year. I'm sure you wouldn't want such a thing to happen to you.
Remember that risk is not only about facing a loss in the investment. It can be of different kinds, such as the liquidity of your investment. For example, a house can take months to sell but metal can be traded quickly. So invest in an investment that gives you the benefits you desire.
3. Not Researching Enough
Research is the key. There are a number of investment options ranging from stocks to real estate to metals. All these investment options have their own benefits and the one you choose depends largely on your expectations and cash in hand. For example, you can start low with stocks but they are more risky. On the other hand, real estate is a safer option but requires a lot more money.
All kinds of investments require research. If you're investing in stocks you should look at the company history including the profits they make and the dividends they pay. If you're investing in oil you should look at future predictions etc.
4. Investing At The Wrong Time
When it comes to investment timing is of essence. The right timing largely depends on what kind of investment you are planning to make. For example, you should invest in stocks when they are vulnerable but expected to increase in the future.
Also, your own financial condition also gets to decide things for you. You should remember the investment time horizon for your investment and see for how long you can afford to keep your money invested.
5. Investing At The Wrong Place
Place is of huge importance when it comes to investment. Let's keep the real estate example in mind. You have the option to invest in a number of cities such as London, Manchester and Derby. All these cities offer different ROIs and have different average house prices with London being the most expensive at £556,350.
says Louis, Fastsaletoday. This means you can buy a house for as low as £235,000. But, the amount will decrease the number of cities you can invest in, highlighting the need to research and pick a city that offers the highest return. The blog further covers the places and types of houses you can buy for £235,000.
The average house price in England in April was £225,000. And according to the latest statistics by The ONS, the average salary for UK adults is £27,600 for full-time working adults. So taking two average adults in the UK and calculating an affordable mortgage based on standard market rates, the upper limit of borrowing potential for an average couple is £235,000.
Hence, when you make an investment always consider the place. Since you can also invest abroad, you should keep the currency value and taxation in mind.
6. Not Doing The Maths
You need to be sure of your investment goals. For example, if you're trying to accumulate $100,000 for your child's education, you should see how long it will take you to reach the goal. Everything from your ROI to the timeline should be clearly explained.
Lastly, you should also keep the time gap in mind. The return should be inflation adjusted. For example, if you're getting a 50% return on an investment after ten years, you should see its net worth ten years from now.
Be a wise investor and avoid the mistakes mentioned above. It is all about being careful and investing the right amount of money at the right time and in the right place.