It’s easy to make mistakes when you’re investing, which is why it’s important to be careful. Everyone makes mistakes, but they can be costly if you don’t take steps to prevent them. There are plenty of different errors you could fall foul of as an investor, whether you’re new to investing or you’re more experienced. In fact, some experienced investors could be more prone to making mistakes due to feeling more confident.
Although there are various mistakes that you could make when investing, it’s also easy to avoid many of them. By educating yourself before investing, and continuing to expand your knowledge, you can prevent some of the most common investing errors.
1. Looking at the past, not the future
Looking at the past performance of any potential investment might seem like a smart way to determine if it’s right for you. However, relying on past performance is unlikely to be a reliable way to determine if it will perform well in the future. You need to look to the future when you’re deciding whether to invest so that you can have a firmer idea of whether it’s going to work out well for you.
2. Forgetting to think about costs
All investments come with costs, in addition to the money you’re actually putting into the investment. Various fees can start to pile up if you’re not careful, so it’s vital to be aware of just what you will be charged and what different fees are for. High charges and fees can reduce what you get back from your investment. Check what you’re paying for.
3. Failing to understand your goals and comfort levels
It’s important to know yourself before you start investing. What are your investment goals? What are your risk tolerance and comfort levels like? You can’t make the right investment decisions unless you know how you want to approach it and what you hope to get from your investments. An investment that is right for one person might not be right for someone else.
4. Not diversifying your investments
Diversification is one of the key rules you need to keep in mind when you first start to dip your toe into investing. The phrase “don’t put all your eggs in one basket” has never been truer than when it comes to choosing your investments. Spreading your investments across different markets and asset types is a must if you want to reduce risk and avoid all your investments being affected negatively at once.
5. Failing to have a rainy-day fund
Before you start investing your money, don’t forget to ensure you have some emergency savings first. You shouldn’t be investing all the money that you have, which is one of the biggest mistakes you can make. A rainy-day fund gives you the cash you need for any unexpected expenses that could come up, whether it’s your boiler breaking or a period of unemployment.
6. Not considering taxes
Taxes are always something worth thinking about if you’re investing. There are some tax advantages to consider, but it can also be important not to focus too much on taxes. It’s useful to consider taxes when making investment decisions, especially when thinking about products such as ISAs or pensions. However, there are also other important factors to consider, and tax savings aren’t always the best way to make decisions.
7. Looking for a quick win
It’s vital to have a long-term outlook on your investments. Many investments are much more beneficial if you have the patience to see how they perform long-term, rather than expecting a quick money-making win. Of course, you shouldn’t discount the benefits of short-term commitments either. They can form an important part of your portfolio and help you to diversify.
8. Not taking time to make decisions
Rushing into decisions is one of the biggest investment mistakes you can make. It’s always crucial to do your research and take time to think things over before making any moves. Whether it’s making an investment without enough thought or quickly selling something because you’re in a rush to try and cut your losses, rash decisions can cause you problems later. Taking your time and thinking it through is always best.
9. Following the crowd
Doing something just because your friends, family, or colleagues are doing it can often seem like a good idea. When they’re all raving about it, whether it’s an air fryer or the latest stock options, it’s easy to be convinced that you should join in. But nothing is ever right for every single investor. You need to take your own circumstances into account and ensure you’re not just copying others for the sake of not missing out.
10. Not learning from mistakes
The number one mistake you could make in investment is failing to learn from the mistakes that you do make. Everyone makes mistakes at some point, even if they know which investing mistakes to avoid. But noticing your mistakes and learning from them will help you to make sure you don’t make them again.
Why Seek Professional Advice When Investing?
Getting professional help is the best thing you can do when investing, particularly if you’re a new investor. Whether you’re looking at property investments, stocks, and bonds, or even gold, seeking professional advice for investments in the UK will put you in the best position to make investment decisions that are right for you.
If you need professional investment advice in the UK, there are several ways to get it. You can speak to a financial advisor, with many to choose from on sites such as Unbiased and VouchedFor. Banks and building societies often have financial advisors who can give you investment advice too. You might choose to start with your bank if you’re looking for help getting started. Remember that all financial advisors need to be approved or authorised by the FCA, so this is something to check when you’re looking for the right service.
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