Economics is an argument not a science, which means two opposing theories can both be right. So how do we know what’s the right thing to do? We’ve nutted out the common mistakes beginner investors make.
Indecision
Doing nothing- if you are too fearful about investing and so do nothing then you will get no where. It’s not possible for most people to be able to retire comfortably with no risk. So if you don’t invest at all, there is no danger you will lose money but there is also no way you can retire comfortably. Understanding risks and then taking them is vital to your long term financial future.
Following hot tips
To follow someone else’s tips without fully understanding your investment needs; to just blindly follow someone you don’t know is just gambling and even worse than doing nothing. This is taking excessive unnecessary risk. It’s not necessary to just take risk, any risk to learn, taking calculated risk with money you can afford to lose is a way to overcome this problem.
Buying at cycle peaks
This happens because you have heard a buzz generally about the market for a long time now, where not only professionals are talking, so is your taxi driver and your part time dog trainer; bragging about how much money they are making in X. So you buy some X only to watch it fall, it wasn’t a hot tip, everyone was talking about it, but it was still not something you understood. Again, it cannot be overstated you need to understand the risks and be aware of major cycles involved behind investment decisions you make.
Order of debt
You might not pay attention to which debt cost what interest rate and so you paid a lot more money than you needed to because you did not understand some of your debt was at 5% and some was at 20%, so you could have four times less money on the lower rate and still be paying the same amount! This means if you have a credit card debt of $100,000 the payments would currently be the same for a $400,000 mortgage! Paying attention to the cost of debt can save you thousands.
For cash
Many people have cash lying around in low interest accounts when they could have their cash sitting in high interest accounts piggy backed off their normal accounts available at a days notice. It only takes five minutes to change this. With all the fantastic online high interest bank accounts with reputable organizations online there is no reason not to. So Google high interest savings accounts today!
For property
Not enough research is the biggest mistake property investors make; buying the first thing they see in an area they don’t know and haven’t bothered to find out about. If you must be lazy, at least buy something in an area you know and don’t expect much, but better still do your homework it can really pay off! I have seen it many times with my own customers; the ones that did the most research made the most money, and the one that made the greatest profit of all was a 19 year old girl who never made more than $40,000 a year! Research, research, research!
For shares
Not enough research is the same main problem for share investors as property investors. Although with shares according to the government’s recent understanding money report “less than 5% of women know anything about any company they invest in”, this includes what the company does! So all you need to do to be ahead of the rest is find out what the company does that you are interested in investing in and do some more basic homework to get even a better possibility of results. Again here I have seen massive returns from the people who did the most work (I used to work in stock broking) and I have also seen people put in a lot of work and lose money too. The ones that had long term systems and medium expectations did the best.
If you can steer clear of these basic mistakes, who knows – you might end up the next big investor! Even if you don’t, if you already have cash in the bank, live in a rented or mortgaged property or have any superannuation, you already are an investor, so it makes sense to at least consider these pointers. Happy investing!
Your say: Do you have any advice for first-time investors? Email us on [email protected]
