History has shown us that when new investors try to make money quickly, most of the time they get burned. But instead of repeating their mistakes, we can learn from them. So what are the biggest mistakes new investors make?
1. Failing to Put First Things First
Before investing, be sure to prioritize the foundational elements of your finances. This includes creating a budget, paying off any high-interest debt such as credit cards, and building an emergency fund.
2. Making Short-Term Trades
Trying to time the market is the biggest mistake new investors make. The wiser plan is to develop an investment plan based on goals, time horizon and risk tolerance. Then, stick to the plan through thick and thin, unless your goals or life situations change. What is the correct time horizon for you? Since day-to-day fluctuations in the stock market are random and uncertain, you want to focus more on longer investment horizons. They are proven to win out over the fear of losing money (getting out of the market entirely) or FOMO (fear of missing out).
3. Confusing Luck and Skill
Just because you make money on an investment doesn’t mean it was a good investment. One recent attraction for investors, cryptocurrency, has proven to be very volatile. If you make money on one risky investment, don’t think that is normal. Diversify your investments and invest for the long term. The boring stuff works.
4. Failing to Diversify
It’s so easy to get caught up in the excitement of the next big thing and forget about the actual risks involved. As stated before, having a diversified portfolio is boring by comparison, but it can better protect you when things turn south. Diversification will look different for every person, depending on their financial situation, goals, and proximity to retirement.
At Servant Solutions, we don’t want you to fall prey to these mistakes. We offer FREE financial planning for all our members, LifeFund (target date) portfolios to help you diversify according to your age and time horizon to retirement, and educational resources to help you navigate the what, when, and how of your financial life. We care about you and want to help!
Please contact us at 800-844-8983 or info@servantsolutions.org to get started on a plan that is unique to you and your needs.