The world of online investments is exciting, with new technologies and tools popping up all the time. But it can also be dangerous if you're not careful.
When you invest in stocks or bonds, for example, you have to navigate a minefield of different options that can make your head spin. This guide will help you avoid some common mistakes so that you can invest like a pro instead of a rookie.
Please note:
This is a general guideline that should not be taken as financial advice. We advise you to speak to a professional investor or financial planner to help you map an investment portfolio that will be best suited towards your needs.
Improper asset allocation
Asset allocation is the division of your portfolio among different asset classes. It’s the most important decision you make as an investor and should be guided by your risk tolerance, time horizon and goals.
Avoid investing on envy, greed or fear
Banking on emotions to make major decisions could end up causing a lot of mistakes that are costly. There's nothing wrong with wanting nice things if your income supports those wants, but many times greed leads people into trouble: buying stuff on credit cards with high interest rates; taking out mortgages without first considering whether they could afford them; even stealing from others in order to fund their habits. Having an impartial and professional voice to help you make the right financial decisions can help you make better investments that have risks that you are able to afford.
Ignoring your risk profile
You'll want to know your risk profile. And that's because it's an important piece of information for any investor. Your risk profile is made up of three factors:
It helps if you have a basic understanding of these things before you build your plan, but as time goes on, they may change—and that’s okay. You should be able to adjust your plan accordingly and continue forward with confidence. That being said, there are some online tools out there that can help guide this process.
Reacting to short-term market conditions
Some investors have a tendency to avoid the market altogether when there are signs of turbulence. This is the wrong approach, as markets can remain volatile for prolonged periods of time. The best time to invest is in an unstable market, when the price of securities has fallen and you can get a good deal on them. The same applies if you’re confident about investing in a rising market: stick with your decision despite any negative news or short-term market fluctuations that might come your way.
Following the crowd
Following the crowd is a bad idea for two reasons. First, it’s likely that everyone else is making the same mistake you are—and if they’re all investing in something underperforming, your money will get stuck there too. Second, following your emotions can lead to impulsive decisions that you might regret later. With things such as Bitcoin and NFT’s on the rise, it is easy to get swept up in the crowd. Not to say that these are necessarily bad investments, but it is crucial that you understand the impact of investing in such products along with the risks that come with it.
