How to avoid common investment mistakes

Maggie Winner By Maggie Winner, 10th Nov 2010 | Follow this author | RSS Feed | Short URL http://nut.bz/dunzte8a/
Posted in Wikinut>Money>Investing

Sometimes you may want to do some investing, but meanwhile you can't help wondering if you can make right decisions. In fact, there are some tips which can help you avoid common investment mistakes.

How to avoid common investment mistakes


1 - If you have no idea about what the product is, don't invest into it!

It's useless to repeat that you must know a product before you put your money into it. However, we often see the opposite scenarios due to the following reasons, such as: exaggerated advertising, complexity of some financial products, lack of management time, etc.


To avoid making mistake: you must take time to learn about a product before purchasing. Be sure to understand all its drawbacks and advantages. Meanwhile, you must also know the risks and returns.


2 - Don't follow unreliable advices!


Have you ever followed the tips from your relatives or friends to make some wrong investment?

To avoid making mistake: you must be cautious about the advices you receive, what you read on the Internet or what you see on television. The information can lead to good business, but can also lead to catastrophe! Unfortunately, it is the latter case that occurs most often. When you hear the people talk about a golden opportunity, the best thing to do is to analyze the relevance of this information. If your knowledge is limited, you may get some advice from a professional investment advisor.

3 - Make long-term investment instead of short-term investment.

This scenario may be common: a venture capitalist invests into a diversified fund whose yield is known as an average of 8% annually. The first two years, the performance is above 15%. The third year, the market turns so bad that the yield falls to 2%.

A bad week, a bad month or a bad year is risk for short-term investment. To avoid making mistake, normally, you must evaluate your investments on the basis of their performance over three years or more and compare the result to the performance of other similar investments for the same period. Thus, if you got a return of 8% over three years, your choice is very good. If similar products have recorded a performance of 6% for this period, it is even better.


4 - Don't put rent money into stock market.

The stock market moves upward and downward in a totally random. Its daily movement resembles the heartbeat! Even when the long-term trend is upward, the market can change quickly. Besides, if it's really easier to make money in stock market, everyone will put money into the market instead of working hard.

To avoid making mistake: you must ensure that you don't need that amount of money for five years. Usually, during this period, there will be an upward-downward cycle. However, statistics show that if historical financial crises occur, the downward trend may last longer. If you do not want to take any risk, you must ensure your money can stay in market until the rebound occurs.

5 - Never allow your emotions to come into play!

Money consistently plays on emotions. Quick gains cheer us up, while the losses make us tremble. The problem is that these feelings may cause you to put all the money into a hollow. You must do exactly the opposite. Emotions should never come into play while you are making an decision on investment. Your decisions should always be built on a calm analysis.

To avoid making mistakes: firstly, you must make an analysis of your long-term needs and your ability to save money. Generally, a reasonable return should enable us to achieve our financial goals and it helps us face fewer risks. In conclusion, good financial planning will allow you to keep both feet on the ground!

Tags

Avoid, How To Avoid Common Investment Mistakes, Investement, Investment Advisor, Investment Decisions, Investment Manager, Investment Objectives, Investment Opportunities, Investment Strategy

Meet the author

author avatar Maggie Winner
I am a writer living happily in Canada. I love to write the articles and share my experience with others.

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Comments

author avatar purnomosidhi
4th Jan 2011 (#)

Good advice, Maggie!

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author avatar Woodsey14
29th Mar 2011 (#)

Great tips, that we should all pay attention to. You may want to check out Kevin O'Leary's advice about investing.
http://money.wikinut.com/Impressions-from-a-Night-Listening-to-Kevin-O-Leary/e-.pf5w6/

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