All investors veterans as well as newbies make mistakes while investing. It’s important to learn from them. By repeatedly committing common investment mistakes, investors often prove to be their own worst enemy.
Lack of Proper Plan
The most common mistake that an investor makes is lack of any investment strategy. From the onset, individuals should have a sound investment plan taking into account several important factors like time horizon, tolerance for risk and investment goal. It should serve as a framework to guide future decision.
Less of Rationalism and More of Emotionalism
A classic example is investor’s inclination to invest most of his money into that asset class which has outperformed in the recent past. Pure investment logic says that if an asset class has already outperformed, there is a high chance for that asset class to underperform in near future. A rational investor would allocate a smaller portion in that asset class. However, most investors usually do the opposite.
Simple is Unacceptable
A large number of investors have notion that simple investment solution cannot be the best solution and they look for complex solutions even if the final outcome is barely different.
When a portfolio is constructed by an investment professional, he usually prefers to keep it simple.
Herd Mentality
People often replicate others investment strategies. This is done even if the risk profile and needs for investments are markedly different.
Procrastinating
Procrastination while investing can be detrimental, because the markets move so quickly. Good investment ideas are not easy to find. If you find, it is important to act on it before the rest of the market take note.
Too much of emphasis on saving taxes
Another common mistake among most retail investors is to prefer investments which save taxes for them even if there are investment options that can give them better post-tax returns . Tax savings products should be one of the options, but it should never be the first option or the only option.
Too Much Attention Given to Financial Media
Listening to the media rather than taking advice from a professional is a common mistake. There is almost nothing on financial news shows that can help you achieve your goals. A useful rule is that if you’ve heard it, so have many others, so the information is already factored into the market price.
Investors who recognize and avoid these common mistakes give themselves a great advantage in meeting their investment goals.