The main rule of investing is that the higher the return, the greater the risk and vice versa. The dream of most people is not to be tied to daily work (as the only source of livelihood) but to receive passive income from investments and do what they love. Investing helps with this, but novice investors often make mistakes. In this article, we will discuss them.
Lack of specific financial goals
If you are asked what you dream about, what will it be? It is unlikely that this will be an investment with high returns. Everyone dreams of being happy and satisfied with life, having a home, family, children, a good job, etc.
At the same time, many beginners come to the stock market to “make a lot of money quickly” or try what it is, feel the excitement and risk, and plunge into this atmosphere. In other words, people come to the stock market without specific goals. But investment (and money) cannot be the goal itself. It’s just a means to tangible goals.
Therefore, before you start investing, decide on your financial goals. Already the specifics: the term, amount, and currency are indicated. The purpose must be specific and specific. At least you must determine several parameters: the future value and the time it is planned to be achieved (read more about How to set financial goals correctly). For example, if the goal is passive income, then the goal might be to start earning $10,000 a year in passive income in 10 years for the rest of your life.
Lack of financial plan and strategy
What to do now? Where to invest now? In gold, stocks, or can the dollar buy?
If you need to get, for example, from Moscow to the city of Sydney, you first plan a route and buy tickets in advance. You know in advance that first, you need to get from home to the metro, then to the station, from the station to the airport, etc. Your route is known in advance and matches your goal.
In the same way, your investments should be in line with your goals and desires. And the better you understand what you want, the easier it will be for you to develop an investment strategy. An investment strategy is a clear set of rules that describes what and when you buy and how to manage your portfolio. Ask yourself a series of questions:
- What are my financial goals?
- What is my investment period?
- What risks can I take without fear?
- What tools will best enable me to achieve my goals?
These questions will help you decide on an investment strategy, and it will become apparent to you what to do and where to invest your money. The absence of a strategy, on the contrary, will cause constant throwing between different assets and will not lead to good results.
Waiting for the best time to invest or trying to guess where the market will go
Several years back, a client approached me with a request for recommendations that would allow him to capitalize on the fall of the US stock market. The client believed that the US stock market was too expensive and was about to collapse, and he would make good money on it. A few years have passed, during which the market has grown by more than 30%.
Unfortunately, no one has been able to develop reliable mechanisms and indicators that can accurately predict global market reversals.
It applies not only to amateurs but also to professionals. First, few can predict the coming crisis at all. Secondly, even those who succeed are wrong in time.
For example, financier and author of popular books Barton Biggs are famous for predicting the dot-com crisis that happened in the US in 2000. However, he was wildly inaccurate, starting to expect it three years before it began.
Statistics show that the most significant inflow into stocks occurs at the peak of their prices, and the maximum outflow when prices reach the bottom. Most investors are highly unsuccessful in choosing the time to invest.
It is not only tough to accurately predict the behavior of the market but also meaningless. Waiting for the best moment to invest can miss out on a strongly rising market (read more. Is it worth trying to guess where the market will go?).
The moral is simple: Invest in the people you understand and the ideas you know.About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud platform where their QuickBooks™️ file, critical financial documents, and back-office tools are hosted in an efficient SSO environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity.