Investing your money is a great way to increase wealth and prepare for a secure future. But if you are planning to invest, the last thing you will want to do is fall victim to these mistakes that could leave you broke and miserable.
1. Panic selling
When the stock market crashes (which happens more often than we would like), it’s easy to immediately panic and start selling off investments before their value plummets even further. But if you go this route, chances are you can block losses that otherwise would have been avoidable.
Remember, you only lose money in stocks when you sell investments when they are down. But some market downturns are only temporary, and if you sit back and work them out, your wallet can bounce back. See what happened earlier this year. In March, stocks plunged into bear market territory and many investors were convinced there would be a sustained market decline. Instead, those losses were written off by August.
As a general rule, you should only hold on to the money invested that you won’t need for at least seven years so that you are in a good position to leave your wallet intact when the market goes south. Stick to that system and you shouldn’t feel like you have to dump stocks the moment things take a turn for the worse.
2. Trying to time the market
Seasoned investors who have been following the stock market for years often have a hard time calculating the time and the same thing could happen to you. Predicting exactly when the large market will rise or fall is extremely difficult and is a strategy that could cause you to lose money for no good reason. Rather than trying to time the market, commit to investing consistently.
A strategy called dollar cost averaging can help you with this. In short, dollar cost averaging involves investing a certain amount of money at predetermined intervals. For example, you might decide to invest $ 100 a week in a specific stock or set of stocks, rather than attempting to buy $ 400 worth of stock at a low point during the month. This way, you are more likely to end up with a lower average purchase price.
3. Holding stocks at a loss for too long
Not every stock you buy is guaranteed to be a winner, and as frustrating as it can be to have an underperforming stock on your hands, you need to know when to cut your losses. If there’s a stock that has lost value since you bought it while the rest of your portfolio is thriving, you shouldn’t hesitate to cut the cord. Holding that stock longer could mean seeing its value drop further.
For many people, investing is a work in progress. You might start with a certain strategy only to evolve it over time as your budget and risk appetite change. But if you are starting out as an investor or have been doing it for years, make sure you avoid the above mistakes. This way you will make sure your wallet serves you well, both in the short and long term.