First Time Investor Mistakes To Avoid

 

When it comes to investing for the first time, things can be really overwhelming, despite being exciting. There is a natural process of fear and doubt when putting your hard earned money into an investment for the first time.

Particularly because you know there is no guarantee that your money will increase over time. This piece is going to cover the top 5 mistakes that first time investors make and how to avoid them.

                          

Investor Mistake One: No Research

This is so obvious that people skip it. They don’t go into the detail that’s required. Often people will go off something they’ve read, seen on TV, a gut instinct or even worse. A friend who is not a successful investor.  

So when you’re looking at researching, if you’re investing in property, look at the basic things, look at the suburb and see what’s driving that underlying economy. What’s the health care sector like?

 

What’s the education like? What’s the employment prospects like for that area? Go through and do that research before you commit to buying a property. What’s the future population growth like for that suburb or that general area and what’s driving that economy.

If it’s investing in shares then you look at the business. Understand what the business does, a little bit about its history, a little bit about where it’s going in the future and then you make your investment there. Do enough research so you’re informed, but don’t do too much where you just get overwhelmed with too much information. 

Investor Mistake Two: Monte Carlo fallacy.

The best way to explain this is you’re playing a game of roulette and you look at the board and see that black has come up for the last eight times in a row.

So you think to yourself, that’s pretty unlikely, chances are that red is going to come up next so I’ll put all of my money on red. Now the issue with that is that it’s still a 50/50 chance whether black or red is going to come out.

That’s the same thing for investing in shares for the Monte Carlo strategy. You’re looking at a stock that’s been going down for the last two weeks, so you think chances are that it’s going to go back up and I can make a bit of money so you put all your money on that stock.

Guess what? There’s a reason why it’s going down. A stock wont turn around if it has some serious underlying problems.

So avoid the Monte Carlo fallacy, I made that mistake first when I was in high school looking at stocks to invest in, it feels natural, but avoid doing that because you will get burnt.

                       

Investor Mistake Three: No exit strategy.

When you buy or hold an investment you have to think about when you’re going to make an exit . Is it a property that you’re going to hold for the next 25, 30 years?

Are you going to exit when it hits a certain value? Are you going to exit when it’s paid off or when you get a certain amount of income from it?

What about a stock? Is it something that you just want to hold for a week or two until it gets to a certain price point? Are you happy with making 10 to 20 percent off those two investments and then calling it quits and selling out?

Think about your exit strategy before you make the investment. That way you have a much more sophisticated strategy overall and know when you’re going to get out if things go really well.

Investor Mistake Four: Following the news.

By the time you’ve read it in the newspapers, seen it in Facebook or seen it on TV, chances are it’s too late. What you want to do is you want to get in before it hits the news.

You want to identify the next big thing through your own research or by through some quieter means so you can get on there. It hits the news, the boom happens and then you sell out when everyone is coming in. If you’re following the news, generally it’s going to be too late and you’ve missed the opportunity.

Investor Mistake Five: Starting too big.

Let’s say you want to go out and your ultimate goal is commercial property development. Well don’t start with commercial property development, maybe start with a house.

Maybe do some renovations on the kitchen and bathroom, then you go onto a project where you’re adding a bedroom and adding some extensions. Then you go onto a small townhouse property development, and then you go onto a residential property, then you go onto commercial property.

You start small and gradually get bigger. That way you learn your mistakes on a much smaller scale, rather than screwing something up that’s worth millions and millions of dollars. It’s the same with the stock market.

If you’re nervous about investing in stocks for the first time, don’t put your life savings in there, just put $1,000 in there if that’s still comfortable for you to invest and get used to the market. See what makes it respond and see how you respond to the market information.

These are by far the most common mistakes that I see investors make.  Get familiar with them and make sure you avoid them. 

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