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Chapter 12 — COMMON INVESTMENT MISTAKES
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COMMON INVESTMENT MISTAKES

COMMON INVESTMENT MISTAKES

Let’s take a brief look at some common investment mistakes, that beginners usually make.

COMMON INVESTMENT MISTAKES

NO PLAN

Without a plan, you will be lost in the world of investing. Investors without plans do not have any structure to base their investment decisions on. This means that they are more likely to make decisions on whims and rumors of the market rather than sound stock analysis.

FOCUSING ON SHORT-TERM INSTEAD OF THE LONG-TERM HORIZON

When you start investing you want to see returns as soon as possible, so as soon as the price of the security you bought goes down slightly there is a big disappointment. For someone who looks at the long-term, there are both benefits of a lower price as one could buy more shares at a lower price and own more of that company.

NO UNDERSTANDING OF FEES

This is one of the most common mistakes a beginning investor makes. She/he doesn't understand what fees are being charged for the service they use. This can results in tens of thousands of dollars in pension savings being lost, or silly trades where the return needs to be larger than 10% just to break-even with the commission costs.

EMOTIONAL INVESTING

Investing with emotions attached is the worst way to invest. It makes investors do the exact opposite of what the rational investor would do. They get scared when the price is low and sell their holdings. Conversely, they get excited when the price is high and buys into an overvalued investment.

FOUR EASY WAYS TO AVOID THESE BEGINNING MISTAKES

1. Learn how to invest  (You're on a good path now with SprinkleBit University)

2. Find your own style of investing which fits your risk profile, time horizon, and liquidity needs. (Try it out with our Stock Market Simulator)

3. Figure out how much time you are willing to dedicate to the process (Compare the amount of time you spend on Facebook when you answer this question)

4. Understand the fees associated and the options you have when it comes to investing.

Example

One of the most common beginner mistake on SprinkleBit is the lack of understanding the commission costs. When you buy stocks there are costs associated with every transaction called commission costs. In this case, it's $8 which means that it costs you $8 to buy and $8 to sell a stock. If you invest less than $1,000 in any stock you would have to make a gain of more than 1.6% in order to just break-even. Conclusion: always invest enough capital so that your commission fees are below 2% of your capital invested. 

 

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