One thing I see new investors do is get into things that are either way too risky or way too conservative. Both can hurt you long term. Most people really want a quick return, but this just isn’t realistic. Taking on too much risk usually involves penny stocks, crypto currency, option trading, or other things […]
One thing I see new investors do is get into things that are either way too risky or way too conservative. Both can hurt you long term.
Most people really want a quick return, but this just isn’t realistic.
Taking on too much risk usually involves penny stocks, crypto currency, option trading, or other things that you just don’t know a lot about
People tend to buy into these because of the fear of missing out. They think it will do amazing and this is their opportunity to get in at a good price.
If you’re feeling rushed to buy- that’s probably a sign that you should take some time and watch the stock and do more research.
I hear people say they’ll invest $1,000 or some amount that is a smaller portion of what they have and they’ll say that they can afford to lose it, so it’s worth the risk to them to hit it big, but really let’s play out the numbers.
If you invest $1k and even if it randomly does amazing and has a 100% return, then you have $2k. You’d have to make the decision at just the right time to sell something like that -if it moved quickly so you actually see that profit, but really what’s an additional $1k going to do for you? It’s not going to be life changing…. And if instead that stock drops 50%, you are then out $500. You probably won’t feel great about investing after that.
That is the biggest risk- not just losing them money, but losing your faith in investing. That can cost you so much more than $500.
The other side of the problem is investing way too conservatively when you are young and have plenty of time before you need that money that you invested.
This happens when people are fearful to lose money or if they don’t understand how markets work and how responsible investing is supposed to work. They may have been someone that made one of the above mistakes, or they haven’t defined the goals for the money.
When you invest too conservatively you risk giving up a lot of growth potential and maybe even not keeping up with inflation.
If you’re setting money away in a retirement account that you really don’t plan to use until you’re in retirement then you should look at the number of years you have until you reach that timeframe and then invest based on that and not just how you feel.
Of course no one wants to lose money, but when you are investing things will go up and down, but if you give good investments time, they tend to grow. There are more good days than bad days in the market.
When you have over 10 years until you retire as well as income coming in. You have time to recover from the market going down. You also have income to invest as the market is down, which will help to accelerate your growth .