By Fred Palmliden
Have your investments previously failed you? If you answered “yes,” you’ve likely fallen into the many traps of investing without guidance. Read on to learn about the common mistakes of solo investors and how to avoid them.
Lack of research
If you are beginning your investment journey alone, it can be difficult to know where to start. In fact, it’s not uncommon for individuals to forgo the appropriate research, jump into trendy stocks and suffer through unwelcomed volatility. A better approach to take, especially for first-time investors, is a patient one. Though it is exciting to watch a “meme” stock skyrocket, it is much more effective to grow your wealth over time with the proper research to lower volatility.
Furthermore, your investment account should be made up of several pieces working seamlessly together, and your goal in investing should be preventing a disastrous loss along the way. A slow, calculated start with a well-built investment plan can lead to a well-designed portfolio with less room for loss.
Overconfidence
Though it seems counterintuitive, a big win at the beginning of a solo investment journey can be detrimental. If you have miscounted your ability to invest and misallocated your resources, a win at the outset can lull you into a false sense of security.
It’s also important to keep a record of all your investment decisions to get a broader perspective of your investment ability. The market tends to humble all investors given enough time. A well-crafted investment plan can help, considering your risk and return objectives as well as your portfolio constraints.
Imbalanced account
Green investors are often tempted to tilt their investment account heavily toward stocks. Though stocks can be a valuable tool to grow wealth over time, the risks that some stocks carry with them are often higher than even seasoned investors might be willing to take on. When evaluating and allocating your first investments, it is easy to take on too much risk for your capital, especially if your account isn’t properly balanced.
It’s not easy to evaluate risk without dedicated education and experience, and though you may hear about the few individuals who have made tons of money through the stock markets, you don’t hear as much about the many individuals who have lost money. One of the keys to investing is a properly diversified account with a good mix of all asset classes, so a dip in the stock market doesn’t cause investors a sleepless night.
If you are considering investing and looking to avoid these mistakes, you may benefit from a team to counsel you through your investment decisions. This team will work to ensure your accounts match the current financial environment, while keeping an eye on risks and performing necessary rebalances to your accounts.
At First Farmers, our compensation is directly tied to the performance of your account. While your typical broker may push for certain products or fund families for their own self-interest, First Farmers is a fiduciary committed to putting clients’ interests before our own. Whether you are just starting your investment journey or have tried it on your own in the past, the First Farmers team will walk with you every step of the way.
