Investing in stocks is vital to building wealth and preparing yourself for financial stability that can take you long through retirement. Buying stock is relatively easy, but choosing the right stocks, creating a strong portfolio, and developing a plan for growing your money can be a more difficult task. To give you the best chance at creating the wealth and stock portfolio you desire, it’s vital to avoid the three following pitfalls that can trip up your investment plan.
Failing to Do the Proper Research
It’s easy to fall into the habit of following the CNBC broadcast and stock exchange network and choose your stock options based on the numbers as they rise and fall. While following the trends of a particular stock is an important part of performing your research, it’s not the only factor that should come into play. It’s essential to remember that when you buy stock, you’re buying a part of the company. This means part ownership, and you would be unlikely to purchase a business that you know little about.
So before deciding on which companies to invest your money in, you will need to research the ins and outs of companies that pique your interest. Find out how the company operates, how it fairs against competitors, how it ranks in its industry, what its long-term outlook is predicted to be, and how it ties in with investments you already own.
Selling at the First Sign of a Drop
When investing your money in the stock market, you need to see it for what it is: a long-term investment. All stocks come with some risks, and along with those risks will be fluctuations in the value of the stock. A rookie mistake that many investors make is panicking when a stock begins to drop and quickly selling their shares in order to reduce their overall loss. There are many types of stocks that will see significant drops when the market fluctuates, but often they will recover recouping the loss and more if you stick with it.
While it’s important to know when to let go of certain stocks that are underperforming, you need to do it only after making a rational decision based on the projected long-term growth or decline. Avoid knee-jerk reactions that can end up costing you what could turn out to be a great investment.
Not Having Diversity in Your Portfolio
A well-rounded portfolio will often have a mix of high-risk stocks, medium-risk stocks, and conservative or low-risk funds. Many investors may gear toward higher risk early in their lives and move to a more conservative portfolio as they get closer to retirement age. The key to creating a portfolio that will work with you throughout your life is one that is diverse in its investments. A great way to add diversity to a portfolio is to invest in penny stocks. These stocks are low-cost and low-risk, making them an ideal addition to any portfolio.
Don’t let these three common investment mistakes cause you to miss out on your wealth and retirement goals. Take charge of your investing by making smart selling decisions, doing your research, and diversifying your investments.