Investing Mistakes All Beginners Need To Avoid
Investing is a great way to build your wealth over the long-term, but it's fraught with peril. Stories abound about hapless investors who believed that they were doing the right thing, only to find themselves getting burned.
In this post, we take a look at some of the investing mistakes that all beginners need to avoid.
Mistake #1: Failing To Reinvest Dividends
Everyone loves talking about “high-dividend” stocks like they're the best thing ever to happen to planet Earth. But the truth is a little different. Dividend stocks are actually a distraction that makes it tougher to build wealth. These types of stocks make out a cash payment, providing you with a share of company profits in proportion to the earnings of the firm.
It sounds like a good thing. But it means that you have to manually reinvest the dividends to keep your wealth growing. What's more, it incurs transaction costs.
A much better approach is to just buy non-dividend-yielding stocks or ETFs. These simply take dividends and plow them back into the product, upping the price over time.
Mistake #2: Basing Investment Decisions On What The TV Says
TV pundits make a lot of noise – and they can scare the life out of people – but they're rarely correct.
Remember, their job isn't to give accurate investment advice – it's to tell stories and entertain. Frankly, if they were able to predict the action of stocks, they wouldn't be presenting TV shows – they'd be investing their money (and other people's) in the markets.
Mistake #3: Failing To Buy New Assets
Pexels – CC0 License
New assets have come along throughout history. At the start, there was just cash and property. Then, as things developed, we got stocks, bonds, and ETFs.
Now crypto is a new asset class, but many people are worried about jumping on the bandwagon, believing that it's just a flash in the pan.
That seems unlikely. Crypto has grown from virtually nothing in 2009 to a multi-trillion-dollar asset class today. What's more, buying cryptocurrencies is easier than ever, meaning that countless more people are entering the markets.
Getting into new asset classes early means that you skip the mass movement that comes later on.
Mistake #4: Withdrawing Too Early
If you put money into the stock market, don't make the mistake of withdrawing too early. It usually takes at least ten years of stock market appreciation to realize gains. And most people should wait at least 20 years before doing anything with their money.
That seems like a long time – and it is – but it's the best way of guaranteeing decent returns. Short-term fluctuations are massive, which means that you could actually lose money if you sell too early.
Mistake #5: Not Diversifying
Don't buy individual assets or company stocks unless you know exactly what you're doing. Buying a single company is always a risk because the future is unpredictable. They could soar like Amazon or Google stocks. Or they could fail, wiping out all your savings in the process. Always diversify across dozens of stocks to protect yourself.