While stock markets have a great potential to deliver high returns on investments, it is also known to be quite risky. If you are new to the stock market, it is advisable to act cautiously while investing in it. It is common to see people complaining about the stock market when they lose money. Most commonly, it is a result of their own faults. In this article, we will speak about the most common mistakes that you must avoid while investing in the stock market.
Investing a lump sum amount:
While there is nothing wrong with investing a lump sum amount, it is optimal to adopt a wait-and-watch approach before committing. It is advised that rather than investing a lump sum, you should start small. When you incur small losses, if suffered, would not hurt much. On the contrary, if you commit to a heavy amount of investment, the damage would be more painful in case of losses incurred from it.
New investors have a myth that they can become millionaires overnight, the truth is quite far from it. Investing is a life-long process that requires one to be disciplined, patient, and calm nature when market volatility acts upon your portfolio. It means you need to keep your expectations realistic with regard to the extent of portfolio growth and returns.
Failing to have a diversified portfolio:
While investing in the stock market if you invest majorly in one sector of the market, the slightest change in the sector could adversely affect your portfolio. It is recommended to stick to the principle of diversification. In building a stock portfolio, you must allocate your investments into most of the major sectors and it is recommended to avoid allocation of more than 5%-10% in any one sector.
Following free advice:
New investors tend to act on free advice without checking any background information that one must know before investing their money. It is in your best interest to avoid such advice. If you are confused or need any suggestions, it’s preferable to opt for professional assistance from an experienced stockbroker like Elite Wealth.
Letting your emotions dictate:
Emotions tend to dictate an investor’s decision-making process. The number one killer of investment return is emotion, being too greedy or paranoid would not help you make returns on your investment. Having a long-term horizon while investing could help you reduce your probability to lose on an investment. Once you’ve invested in a stock after much research, continue to monitor its performance on a regular basis.
Withdrawing your investments following short-term volatility:
As we know stock markets are volatile. There are many factors that lead to this volatility. This volatility tends to last for a short period of time so, the most important thing is to not panic and withdraw all your investments following the volatility. If you have invested in fundamentally sound stocks, there’s no reason for you to panic during the swings. Stay invested and you may end up making good returns on your investments.
By now you may know about the most common mistakes that investors do while investing in the stock market, and it is advised for you to avoid such mistakes. Start your journey in the stock market by opening a Demat account with Elite Wealth.