The Biggest Investing Mistake: Not Picking the Wrong Stock
Many people delay investing because they are afraid of making mistakes.
It’s all right to be afraid.
Markets go up and down.
Headlines of uncertainty.
Stories of investors losing money give the impression investing is risky and unpredictable.
So many people wait months, even years, for the perfect time to get started.
The biggest investing mistake – ironically – is often not picking the wrong stock.
It never gets off the ground.
The Cost of Delay
Now imagine two people with similar financial goals, same income.
One invests early and keeps investing.
The other waits for the ‘right moment’.
Years go by.
The market is never static.
But the first investor simply keeps rolling it over.
The second investor is waiting on the sidelines.
The gap isn’t always about higher income or more investment savvy.
Sometimes it is just the decision to begin.
Time is one of the most powerful weapons in the investor’s arsenal.
The longer money remains invested, the more it has a chance to grow.
Investing Is Not a Get-Rich-Quick Scheme
Investing is often viewed as a way to get rich quick.
The thing about social media is it is about dramatic gains stories, and it makes successful investing look like it is all about finding the next big thing.
The truth is that long-term investing can often be a much less exciting proposition.
It takes a little while.
It’s about consistency.
It’s about sticking to your plan when the markets go crazy.
The trouble is that investors often get lost in the short term.
Those who build wealth over time focus on steady progress, not the thrill of the short term.
The Price of Feelings
Investing isn’t a numbers game.
Behavior is often driven by emotions.
As the markets rise, people get excited and throw more money into the markets.
Many investors sell out of fear when markets fall.
Unfortunately, decisions based on emotion do not usually have good results.
Paying high prices and then panic selling hurts long-term returns.
Smart investors understand that market volatility is part of the game.
They’re not commenting on every headline.
They are working on their bigger money goals.
Diversification Still Works
One of the biggest mistakes new investors make is putting too much money into one place.
A company can look good today.
But markets can move very quickly.
Diversification is a risk mitigation strategy that involves investing in a wide range of assets, industries or sectors.
This is not a risk eliminator.
However, it can reduce the impact of any one bad investment on the overall portfolio.
The intelligent investor considers diversification as a means of self-protection rather than a means of attaining the best possible return on investments.
Why You Need Consistency
Often it’s about consistently contributing to investment success.
Large sums spent all at once can be helpful, but regularity usually makes a bigger difference over time.
Small, consistent investments can add up over time.
This takes some of the pressure out of trying to guess what the market will do.
Investors want to participate consistently, not perfectly time the market.
Consistency makes investing a long-term financial habit instead of a one-time event.
Managing Risk
Any investment carries risk.
Risk is never completely eliminated.
The goal is to understand it.
There are different levels of uncertainty with different investments.
A few things to consider before investing:
- Financial targets
- Investment time horizon
- Risk appetite
- Needs for liquid funds
- Average returns
What works for one investor will not work for another.
Often the key to good investing is knowing personal goals first, before following the herd.
Investing Is a Marathon
Markets always have periods of uncertainty.
The history of investing is a history of economic slowdowns, geopolitical events, and market corrections.
But long-term investors usually look at the big picture.
There may be short-term fluctuations that catch the eye, but what counts is long-term progress.
Patience is not an easy thing.
But it is one of the most valuable qualities an investor can have.
At a Glance
Successful investing is seldom about being exactly right about the future.
This means doing the right things, managing risk, and thinking long term.
The best opportunities tend to go to the most patient, the most consistent, and those who keep learning along the way.
Markets will change.
Economics will change.
New opportunities will always appear.
But for most investors, the most important step is still the most basic:
