Common Investing Mistakes and their Resolutions
Below we list some common mistakes made by beginning investors and how they can be prevented:
Not Diversified Enough
Putting your hard earned money in just a handful of stocks is not a good idea. Try diversifying your portfolio by investing in several stocks preferably in different industry sectors e.g. health, financial, technology, discount stores etc. An individual stock may fall considerably or sometimes a specific industry sector may get out of synch with the major stock indexes e.g. Dow, Nasdaq or S&P.
Buying and Holding it too long
Remember you only have a profit if you sell your stock. Your stock profit on paper can get wiped away anytime. Buy a stock and monitor it after reasonable intervals. When it's time to sell, go ahead and sell the stock and lock in the profit.
Selling on Market corrections
As a beginner investor, it'll take some experience before you can become a mature and resilient investor. Market corrections are a good time to buy discounted stocks or to do dollar cost averaging on existing stocks and not to sell them. This is assuming market fundamentals are good.
Leveraging too much
Buying stocks on margin(on credit) or having risky option bets is not healthy for your portfolio or for yourself. Leveraging, even though it promises good returns, can wipe you out as well. Practice Caution!
Investing in stocks that you don't understand
Most judicious investors tend to stay away from stocks that they don't understand. This is a good practice since for you to know when to do dollar cost average or when to sell you need to have some grasp of the stock's fundamentals.
Not having sufficient cash on hand
You should have sufficient cash for emergency purposes and not have all your money invested in stocks. Being forced to sell stocks when they are already down can be pretty disheartening.
Trading too frequently
Depending on your total amount of investments, trading costs can add up. Make sure you take those into account while you trade.
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