The world of investment can be daunting and incomprehensible to the newcomer and the matter is only compounded by the proliferate advice out there from all manner of sources, some far more legitimate and benign than others. In their desperation, many nascent investors cling to the first piece of advice they come across, regardless of the veracity of the source. This can lead to some mistakes upon investment that end up spelling disaster, with investors losing significant sums of money on bad tips with negative consequences on their family life and emotional wellbeing.
While there’s no ‘one size fits all’ strategy for investing with proven high yields (if there were, everyone would be doing it), there are certain pitfalls of which all new investors should be aware before parting with their hard earned cash.
Letting your investments run away with you
Once you’ve found worthy stocks, shares or commodities in which to invest your money, it’s important not to take your eye off the ball, passively assuming that your investment is reaping dividends. We’re psychologically predisposed to assume we’re making the right choice, but only by regularly checking on your investments through an up-to-date trading platform can you know for sure. Check on your investments regularly to ensure that you only ever make well-informed, strategic choices.
Getting emotionally attached to an investment
Many brokers will try and get you to fall in love with a company when you invest, and it may well work. After researching the company you might have a good feeling for the way they operate or their corporate ethos may resonate strongly with you. They may even be able to show you consistent growth over the years since their inception. This combination of factors can lead you to consider this company your ‘golden goose’, but you should be wary of putting all of your eggs in their proverbial basket. If for whatever reason, the value of their stock should plummet, you’ll be seriously out of pocket.
Buying into the “penny stock” fallacy
We’ve all seen the Wolf of Wall Street and the picture it paints of Jordan Belfort’s fortune made trading penny stocks is disturbingly accurate. Penny stocks may seem like a great idea to a nascent investor. A cheap stock in a fledgeling company that, with your help, could be the next Walmart or Microsoft. The trouble is that this almost never happens. Firstly, penny stocks rarely cost a penny anymore, typically between $3 and $5 and secondly, the kinds of companies with such low valued stocks rarely perform well, making them a lower priced but far less reliable alternative to blue-chip stocks.
Over diversifying
It’s common knowledge that a diverse stock portfolio has a better chance of success, but what few will tell you is that you can take diversification too far. Spreading your investments across a wider range of businesses will also inhibit the kinds of yields that you can expect. Therefore, it’s advisable to limit your investments to 15-20 stocks encompassing a range of industries, thereby finding the balance between protecting yourself from major losses and limiting the chances of a high yield.