If you are a new investor, then stepping into the financial world can be very intimidating. It’s not unlike going to a casino for the first time. The lights get you excited and the possibility of winning money is exhilarating, but the fear of losing it all is also heavy on your mind.
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Though investing is a lot safer than gambling, you do need to know what you are getting into. As safe as it can be, there are many ways that you can end up losing money if you don’t know what you’re doing.
The best way to start is to understand the ways that you can lose money so you can avoid them.
In this article, I will go over several mistakes that rookie investors make so you can get started on the right foot.
1. Falling victim to fraud
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In your enthusiasm to get started, you are a prime target for shady characters who are ready to promise the world but fail to deliver on their promises. Think about the Bernie Madoff’s of the world who were able to steal billions from people who should have known better.
As a newbie, you may not be as educated in how the financial tools work and are ripe to be defrauded. The good news is that you are covered by law if you do fall victim to investment fraud. With a good investment fraud attorney, you may not lose much.
Of course, prevention is the best way to go so be aware of the many types of investment fraud schemes there are. If you already know how these fraudsters operate then you should see these coming before you jump in and hand over your money.
2. Being impatient
Unless you are day trading, and I don’t recommend it if you are new to investing, then you need to be in it for the long term. Which means being patient enough to go through the ups and downs which is how investments go.
You might be expecting a return right away, but the reality is that it can take some time before your investment starts paying off. You may be waiting for the company to do something dramatic to increase their share value overnight into the stratosphere but they usually do things slowly and methodically.
Expect returns around 6 to 8% per year and you should be fine. You may make more than that, but you may not so have reasonable expectations.
3. Jumping on a bandwagon
There’s an old saying that if your barber starts giving you stock buying advice it’s time to sell. In other words, some stocks are hitting their peak. Look for stocks in companies that may not be the sexy pick but are performing under the radar and stay away from the stocks that everybody is buying.
It isn’t a popularity contest so stay away from those stocks that people think look cool and go for the ones with a slow and steady return. You’re less likely to lose your money on those.