Who doesn’t dream of making money work for them and getting rich at the same time? But for many investors, things often turn out differently than expected. We explain the most common investment mistakes and how to avoid them.
1. Put everything on one card
There is an old stock market adage: never put all your eggs in one basket. What does that mean exactly? If you put all of your investment money in the stocks of a single company, you risk it all if that company goes bankrupt or suffers a stock market crash. In order to counteract this so-called cluster risk, it is advisable to invest the money in different companies from different sectors and possibly countries. It’s even better to invest your money in different types of investments – the trade jargon calls this “diversification”. This allows you to limit the individual title risk and mitigate the effects of a stock market crash on the portfolio. Bonds (premium bonds 2022) and gold, for example, usually react with price gains when stock markets collapse.
2. Invest without a goal and strategy
This is probably the most common mistake made by private investors. At the moment, the topic of “investment” is on everyone’s lips. Because in the current environment of negative interest rates, savings accounts hardly yield any returns. But simply blindly buying securities is not the solution. The success of investing depends on the goals and the resulting investment strategy. As different as the goals in life are for each individual, they are just as different when it comes to investing. So if you want to invest money, you should be aware of your goals and your investment strategy. More on this in our article “Why personal goals are important when investing”.
3. Follow insider tips from others
What the farmer does not know, he does not eat. A proverb that is very directly applicable to our subject. It is particularly recommended for inexperienced investors. You should not invest in a share or other investments because of an alleged insider tip. It is advisable to examine each security before investing and to contact your investment advisor if you have any questions or are uncertain.
4. Follow the trends and hypes on the stock market
Trends may indicate a good style of clothing. In the case of stocks and the like, on the other hand, they usually promise little success, because what is currently in fashion is often expensive and the time for large increases in value is already over. Private investors often lag behind stock market trends. Why? Because the big institutional investors and professionals are already invested. Our tip: stay diversified and don’t limit your own investment strategy too tightly to individual topics.
5. Ignore fees
Investing costs. Not much, but often the fees for custody accounts, accounts, or individual transactions are hidden. Mistake! Because these eat away part of the possible return.
6. Let emotions run free
Our emotions have a major impact on our actions. In love this is wonderful. And even in everyday life, this has its beautiful sides. When it comes to investing, however, our emotions get in the way. Buying shares in your own “love brand” often makes little sense. Neither does buy or sell based on intriguing market movements. This reduces the chances of higher returns. One thing is clear: there is no right time to invest. It is worthwhile investing free capital in tranches on the capital markets and thus relying on the long-term, positive trend.
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7. Don’t take risks
Many want to invest and earn an attractive return but shy away from the risk. First of all: Investing money without risk, that doesn’t exist. What there are, on the other hand, are strategies to reduce avoidable risks. It is advisable to gradually build up a diversified portfolio. This improves the chances of success for all investors. You can find out more about this in our article “Investing money without risk: Is that even possible?”