Avoid Costly Mistakes: Top 5 Investing Pitfalls for 2020

We’ve all been here; you discover this cool investment opportunity that everyone is talking about. Without a second thought, you have dipped your hand into that emergency fund and invested in the coolest venture in town. Here are 5 Investing mistakes you should try to avoid in 2020.

 

1. Investing Based in Trends

It’s common to find people who burnt through their entire savings by jumping on every new trend or using the herd mentality to invest. It could be that shiny new startup, a Kickstarter project, GoFundMe, or that new derivative that has been invented in Wall Street.

This kind of investing is mostly driven by FOMO (the fear of missing out). That manic fear of missing out on the next big thing. You definitely don’t want to become the next Ronald Wayne, the guy who sold his Apple Inc stake for 800 bucks.

Investing in trendy assets is a sure way to poverty. Yes, you could hit the jackpot and become the next Warren Buffet but how many people win the jackpot? Several behavioral studies have shown that such investors are also the biggest losers out there.

Solution: Always take time to analyze the asset you want to invest in. There is a saying among experienced traders that trends are 99% right and 100% wrong. Individual investors should leave this type of investment to the VC firms. Unlike you, these firms have several experts and lawyers sifting through thousands of documents and conducting interviews before funding a trendy project.

 

2. Short Selling Impulsively

There is news of an impending executive shakeup in an entity you have invested some money in. Everyone gets into panic mode, dumping their shares and collectively digging their own graves as the share price tumbles. You probably took a lot of your time to buy stocks at the best price and should make the same effort to sell them at the right price.

Solution: Don’t be impulsive when selling or buying shares when faced with uncertainties. As an investor, you should understand when there is upheaval in the market and when to hold on to your shares.

 

3. Unwarranted Pessimism

The past decade has seen a general shift towards pessimistic investing. Bear markets have become a part of modern-day investing as markets crash and bubbles bust. The 2007 global financial crisis and subsequent upheavals have pushed individual investors into a pessimistic abyss. It’s not uncommon to see investors panic selling long-term equity mutual funds over short term losses.

This unwarranted pessimism has also pushed some investors into buying low-risk assets like bonds and blue-chip stocks. Some have chosen to avoid the market altogether and open low-interest savings accounts.

Solution: There is no need to be over-pessimistic about investing based on market upheavals. There is still plenty of value to be derived from the available investment opportunities. While caution is always encouraged when investing, too much pessimism does not guarantee financial safety.

 

4. Expecting Too Much from A Penny Stock

You expect to turn the $500 you used to purchase those cheap over the counter stocks. Maybe you were the victim of a smooth-talking dealer running a downtown sweatshop. Trading in penny stocks has been around for many years and has been a source of happiness for some and a source of untold agony for others. What should you expect from penny stocks?

Don’t have huge expectations when buying and selling penny stocks. Like any other small trader selling cheap items, expect modest gains as you gradually build your portfolio. Penny stocks rarely move by big margins unless they are taking a dying dive.

 

5.  DIY Investing Without Knowledge

Anyone can trade Forex, stocks, CFD, derivatives, and any other asset class out there. However, a bit of knowledge is required to make wise and educated investments. Don’t be that foolish trader who wipes out their entire savings doing something they don’t understand. Enroll in a course, read some books, watch some tutorials and find a mentor to guide you.

 

In Conclusion

Investing is the only sure way to financial freedom. However, foolish investing can also lead to financial bondage and distress. “Stay hungry, stay foolish” as Steve Jobs once said.