When you start to begin investing for the first time in various stocks, it’s highly expected that you’ll make few mistakes. But at same time, you would surely want to minimize the number of the investing mistakes you make, to maximize your return. But before that, make sure the mistakes you do make, don’t end up costing you too much money and lifetime regret
Here we want to address some of the most common investing mistakes that we usually see among new or inexperienced investors.
Not Researching before Investing- Market is all about doing speculations all the time. For that, Research plays a vital role when investment is concerned. To build a strong and diversified portfolio one must understand the types of schemes and funds available to him/her to avoid such common investing mistakes.
Not Diversifying Your Investment Portfolio – While professional investors may be able to generate excess return over benchmark or we can say beating the benchmark by investing in a few stocks. At the same time common investors should not try to do this on their own. Always stick to the principle of diversification. This is the rule that should be kept in mind all the time to success in stock market and to nullify the common investing mistake. New investors are not able to comprehend the actual circumstances that exist in the stock market.
Invest All at a time and don’t use SIP: Beginners don’t understand the power of compounding which holds the important role that SIP provides to the investors. Just for the sake of excitement and greed to make money faster in a short span of time, beginners invest their capital all in one go without even considering the apt system of investing. When market fall they aren’t left with money to average their price. So, It is always advisable to prefer buy shares in SIP mode so that you can get a good average price for your stocks over the coming years.
No Plan for trade: Experienced people enter into any trade market with well defined plan and objective of entry, exit and maintaining the profit. But beginners very unlikely have any plan about when to enter or exit a trade and how much capital needs to be invested in the selected trade. This creates a difference in perception and success ratio of both the kind of investors.
Not understanding the basics-You will find many investors who try to be very informative about investing but don’t understand basic investment terms like support and resistance, benchmarking, volume, P/E, market cap, all time high, 52 week high, stock index, all time low, bull and bear market and so on. Always take your time to learn and understand these basics then only you will be able to sustain in the market and reap the benefits. The more you understand these terms, the clearer it becomes to your understanding that the stock market is very complex and unpredictable at moments.
Following the Herd -Another common mistake made by new investors is that they blindly follow the herd; they may either end up paying too much for most demanded stocks or may initiate short positions in securities that have already plunged and may be on the verge of turning around.
Paying too much in commissions-Once you start actually investing, just make sure not to indulge in spending too much on trading commissions, which is mainly the fees in the form of brokerage charges for each buy or sell order you place. You should aim to pay no more than about 2% of the value of your trade in commissions. For example, if you were placing a Rs. 1,000 trade, you would spend no more than Rs.20 on commissions.
Setting up unrealistic expectations-Building wealth through the stock market can take time. Never put any money into stocks that you may need within the next three to five years because the market fluctuates and eventually take a few years to recover. For example: If you want to withdraw your investment after an year then you should not be investing in equity funds or ELSS as the lock in time period is of more than 3 years. Hence, it is advised not to be in hurry and ending up being confused on the realistic situation.