Some of the worst investment mistakes are easy to make. The excitement of investing can put blinders on, and you can be dazzled by a company or even tempted by temporary high gains. Unrealistic expectations and not accounting for inflation are just a couple, so here’s more.
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Not Researching Your Managers
Some investment companies come recommended, and others are preceded by their reputation. Yet, as history has always shown, it is always best to be cautious when signing with any agency, no matter their reputation. As an asset manager, Global Investment Performance Standards, or GIPS standards, are a set of rules that govern an investment firm’s methods. As an asset owner, you need to be aware that these are voluntary, but you can assess a firm based on these.
Having Unrealistic Expectations
One of the most common downfalls of an investment venture is having unrealistic expectations. Wow, wouldn’t it be amazing if we could all invest and make money like Bitcoin a few years ago? But alas, that really isn’t how it works. Sure, you can get lucky now and then, but investment isn’t too far from gambling, and your money is always at risk. A good investment return is between 7% and 15%, and even that’s being hopeful. However, this adds up to a lot over the long term.
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Investment Mistakes and Inflation
Savings accounts are a good investment, but they aren’t as secure as you might think. When you save money in a bank or put cash away, you are constantly losing money because of the rate of inflation, which has been horrendous lately. Inflation isn’t how much value is lost, as some people think. It is the speed at which value is lost annually. There is no solid way to avoid inflation when investing, but a diverse book of stocks and investments will mitigate some of the risks.
Failing to Diversity Your Portfolio
All stocks go up and down, and some can explode and leave you out of pocket with lost money. One way to offset any losses is to hedge with a diversified portfolio. Around 25 stocks are considered the optimal number to ensure you can absorb any heavy losses from one or multiple stocks. The idea is that when one or more stocks crash, the others might possibly increase in value. With the right strategy, you can hold your return rate at a steady percentage annually.
Jumping on Trend Bandwagons
Something that new and even experienced investors are guilty of is jumping on the latest trends when investing. Sure, it can pay off big time, as with crypto. But this is very, very rare and extremely risky to the point of stupidity. Any firm you pay to invest money on your behalf will have systems in place to analyze and assess stock using due diligence before using your money. So why would you not do the same? Learn about risk, return, and asset class at the very least.
Summary
Not researching asset managers is one of the worst investment mistakes you can make. Another is failing to diversify. And at all costs, try to avoid jumping on the latest trends.
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