Top 10 mistakes to avoid while investing in stocks for the first time

Investing in the Stock market is such an exciting activity that can either earn you a lot or take a lot away from you. A small mistake and huge loss can take your chance of profit and rather cost you more. Successful investing is never just about selecting the right stock or group of stocks it is much more than that. Additionally, there is no undo button once you do some mistake for that reason you should be very careful while investing in the stock market.

Impatience is the enemy of investors in the stock market as in early 2020 many investors become impatient and started liquidating their portfolio. Patience & Planning is key to be stable in the stock market without thinking about how stressful the situation is. The collapse of early 2020 bounced back quickly and everything was back to normal. Moreover, some common mistakes that new investors should avoid are given in this article.

Top 10 mistakes to avoid while investing in stocks for the first time

1. Personal Bias: Many times a beginner investor tends to direct their moves according to their personal bias. Many new investors just invest in the company they like or the company they know. This is not the right thing to do as the companies they choose might not be ideal. They do not have a look at their risk profile and financial goals while making an investment decision.

2. Asset Allocation is important: Asset Allocation is an important step in making a portfolio. But new investors always pay more attention to security selection rather than paying attention to asset allocation. Additionally, you should target to invest in the next hot stock but aim for correct asset allocation.

3. Taking Historical Returns as the measure for Future performance: Relying on the past historical returns is a common mistake. Past results or historical returns are never a good measure to indicate future performance. Historical returns can help by being a risk indicator for any asset and build a long-term investment horizon portfolio.

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5. Lack of Investment Goals: Lack of a proper investment goal can create a lot of problems in your trading/investing. You need to come up with your investment objective and use the best tools to achieve those objectives. The investment objective can be your child’s education, creating a retirement fund, or just hedging your expenses. Axis direcr brokerage calculator

6. Being Impatient: For a successful long-term investment, you need 99% patience and 1% actions. Lack of patience is common in many investors which is the reason not many get huge returns from this strategy. You should not be concerned about the short-term volatilities rather concentrate on the big picture that is long-term growth potential.

7. Waiting for a point to get Even: Many investors waits for a losing stock’s returns to get back to normal for trading. It is called cognitive error that makes you fail to accept the losses. Loss is in two ways:

• You are not selling off the dropping stock which may even perform more adversely

• You are keeping your funds engaged in a bad stock and losing the opportunity to invest it in some other good stock.

1. Not matching personal objectives with investment style: Market is not about investing like one size fits all. Additionally, you do not need to pursue an investment strategy that does not suit the investment goals of yours. You need to honor or keep in mind, your objectives, resources, and risk tolerance.

2. Being Driven by Emotions: When you make an investment decision many biases come to play one being your emotions taking over you. Additionally, relying on emotions can ruin your investment, when you make decisions because you "felt" that was right.

3. Over Diversification/No Diversification: New investors are not quite aware of the word diversification. Diversification benefit is generated when you don’t keep all your eggs in the same market. When you diversify or invest in more financial assets with lower correlation with each other you will get diversification benefit. It helps to balance out the risky assets and make your portfolio stable by cutting volatility. As harmful less-diversification is even over-diversification can cost you more than you gain. Diversification should be adequate by mixing high-risk and low-risk investments and keeping your portfolio healthy. When you fall in love with a particular stock you might tend to not diversify and put all your money in that one particular stock.

4. Short Term focus: The idea of trading in equity or investing in financial assets sounds a way that can make you rich quickly and hence people have a short-term focus. Additionally, many investors make rash and uninformed decisions in order to earn in short term. You should always write out your goals and what you want to do in the future. Then pick an investment strategy in the lines of your goals. Most importantly you should keep some investments for 5 to 10 years in your portfolio which can bring maximized returns.

5. Extra Point (Trying to Time the Market): On the bonus point let's discuss about how many investors make a mistake trying to time the market. Timing the market is next to impossible and a challenging task to do. Many seasoned investors too find it difficult and often fail to do so. Additionally, you can earn more by proper asset allocation, and not from security selection or market timing.

Conclusion

To sum it all up, preventing some common mistakes like relying on emotions, being impatient, not matching your investment style and objectives, waiting to get even, considering historical returns as the measure for future performance, etc should be avoided. As new investors are not really well-versed as to how the market works you should educate yourself and aim for perfection. Additionally, timing the market is not quite something you should do as even highly experienced investors are unable to do so. Do proper asset allocation, be patient, take the advice of experts when needed and you are good to go.

S. Vishwa is web marketing analyst at Finology Ventures. With 5+ years of web marketing experience, joined a Fintech company to help people to learn and earn more.