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Investing
16 May 2019 6 min read

Top 3 investment mistakes you need to avoid

Investing

Top 3 investment mistakes you need to avoid

Thu May 2019 6 min read
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Like any other life-long experience, investing comes with many ups and downs. You’ve probably made investments you’re proud of and perhaps some, not so. In any decision made, there’s nothing worse than regret. Especially when it comes to investing, you never want to be in a “should’ve”, “would’ve” or “could’ve” situation. It could cost you a ton of money and not to mention, unnecessary stress! In this case, awareness is key.

Here are the top three investment mistakes that you should definitely avoid:

Mistake #1: Making Emotional Decisions

Emotions are natural and not always bad. However, when it comes to investing, emotions hinder rational decisions. There are bound to be good and bad times – times in which your investment is flourishing and times in which it may not be doing as well. In good times, you deserve to celebrate but it is important that you do not make any hasty buying decisions. Many investors may feel great and decide to invest more money in an asset. This may not always be the best decision. Think about the dot-com bubble!

During bad times, take a step back to recollect yourself. Refrain from making hasty investment decisions you think will make up for the losses you have incurred. Doing so may cause you to fall into an investment trap – investing frivolously for short-term gains without analyzing trends and markets. Always rationalize your decisions before making any.

Mistake #2: Being Impatient and Putting all Your Eggs in One Basket

We all remember Enron. The effects of Enron’s fall never left. The sadness, rage and regret can still be felt today. Enron was initially doing well, selling at a peak of US$90.75 per share in mid-2000 but it eventually plummeted to less than $1 by the end of November 2001. If there was one thing Enron taught us, it was definitely to diversify our investments. Just because something was reaping high returns initially does not suggest that it will continue doing so. If you’re constantly chasing high returns, you may end up getting consumed by greed; making irrational decisions that will eventually cost you a hefty sum. If you’ve made long-term investments, patience is key. Stick to your investment strategy and avoid being swayed by the hype of high-flying investments around you. It is also important to note that your investment strategy should help you manage risk by diversifying into a variety of products.

Mistake #3: Not Practicing Due Diligence in Researching

Investing is not to be taken lightly. It is important to cultivate a life-long habit of practicing due diligence. Often, many novice investors tend to follow the crowd. While investment research is a tedious and difficult process, it is necessary to make the right choices. The lack of research will only result in a lack of knowledge. This is extremely dangerous. By relying on others, you’re not just investing in the business but in the opinion of the crowd as well. Due diligence can come in many forms and should cover multiple sources. Investors often look at annual reports of companies and funds, related news articles, reliable advisors and sometimes if relevant, even personally experiencing the product or services themselves!

Never Again

It is not always easy to make good investment decisions. As a start, reflect on the three mistakes above. Try your best to make rational investment decisions, diversify your risk and always practice due diligence. As cliché as it may be, it’s better to be safe than sorry!

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