5 Things to Avoid When Investing

For example, investment gurus caution against investing in any business that you don’t understand. If you invest in Apple or another company that sells cellphones, while there certainly may be questions you need to have answered, you at least understand the product.

On the other hand, if you invest in a company that makes 3D printers, there could be hundreds of questions to answer. Which companies use 3D printers? How do you tell a good one from a bad one? Is this the latest technology and software or will it be superseded in four months by better models?

Important things to avoid

That said, here are some important lessons to learn the easy way rather than the hard way about investing:

• Expecting too much from a stock

  According to an article at balance.com, Common Investing Mistakes, one of the worst habits of inexperienced investors is expecting too much out of a stock.

  Good stocks normally appreciate around seven percent after inflation is taken into account.

  But some stocks are much more volatile than others. They may appreciate only one percent per year for several years, but like a drug company that suddenly has a patent on a hot new drug, shoot up to ten, fifteen or even twenty percent.

  Some stocks have lost as much as .43 percent over a one year period and gained as much as 97 percent over the same period of time.

  While super-high appreciation is appreciated, more often than not it won’t happen. In fact, you can lose money. This is why most people invest in blue chip stocks.

• Failure to network

  If your business depends on getting key customers in the door, you will need to network. For example, it is a smart idea to network real estate knowledge from person to person in the group. This information can be so valuable to a real estate investor. You will get much more out of your investments if you network wisely.

• Not reading the tea leaves

  Many investors, overwhelmed by the amount of information out there, choose to take the opposite approach and essentially follow the herd. They may buy Pfizer because Herb in accounting says you can never lose with drug stocks.

  It might be that they saw an article in the New York Times that suggests China will be the dominant economy in 2025, so they assume now is the time to go all-in on the Chinese yen.

  Such investors might as well choose stocks by putting a copy of the Wall Street Journal at the bottom of their canary’s birdcage and choosing according to the droppings on a particular stock. It’s generally better to hold off investing and just save money until you carefully have a strategy to follow.

  An article we like is Curious Cat’s advice of the top ten stocks to buy and hold for ten years. You may not agree with the advice, but it’s more the tone and subject matter. Straight to the point and in simple English.

other valuable tips:

First Time Investing in a 401K? 4 Tips to Make Sure Your Money Adds Up

How to Begin Investing Your Money – 3 Worthwhile Investments

• Not considering a robo-advisor

  A robo-advisor is a program where, for a small amount of money, perhaps .25 percent of your portfolio, you answer a few questions such as how soon you need the money, what are your short and long term investment goals, and the program invests your money for you.

  Investopedia has a great article about Robo Advisors at Best Robo-Advisors. Until you have the knowledge to choose stocks properly, robo-advisors may be the way to go.

• Impatience

  Impatience is the number one error in investing. You should plan on being in an investment for at least 5 years, which is why your due diligence is important before you invest. Look for steady, long-term gains. Don’t go for longshots that will pay you thousands if you are correct, but more often than not, your money disappears into the night.

Image Credit: by Pixabay

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