5 Common Investment Mistakes Made By Newbies

Most of us are fairly clueless when it comes to the ins and outs of investing. We usually recognize the need for prudent investing as a way to feather our retirement nest eggs. But when we aren’t sure exactly how it all works and what’s our best course of action, we tend to hesitate.

This hesitation and uncertainty can leave us staring at our retirement and realizing we’re not prepared. When we do take the plunge and try our hands at investing, too many of us make common rookie mistakes. To keep that from happening to you, here are some common newbie mistakes you can avoid.

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                                                                                                                                        1. Don’t overpay for an asset with an underwater cash flow

When it comes to investing, the bottom line is the bottom line. Whatever you invest in or purchase is worth an amount equal to the discounted cash flow it produces. It is the same as a business: what matters is the cash generated, commonly called the bottom line. You want money coming into your account, not hemorrhaging out of it.

2. Plan, plan and then plan some more

Make certain you have a good plan in hand before getting into any investment situation. Your plan should include a solid statement of your goals and your objectives. Read investmentbooks to get the lay of the land. Research the risks you will face and how to recognize a growing risk. Make certain your plan includes a well-diversified portfolio. Remember the adage: don’t put all your eggs in one basket.

3. Look to the future, not the past

New investors tend to make this mistake all too frequently: looking at an asset’s past performance and assuming that it will continue performing in that manner. If this was an actual indicator of future performance, every investor would be rich today. Looking to an asset’s past performance can isolate trends in performance, but it isn’t a crystal ball that will forecast future gains or losses for you.

4. Relax

Enthusiasm about investing can morph into an obsession if you allow it. You should expect to have a bit of anxiety about risking your money but take steps to make certain it doesn’t become an overwhelming obsession. Too often, first-time investors allow concern over the performance of their portfolio to become the driving factor in their lives. Understand that investments have ups and downs; watch over your portfolio with a discerning eye and act accordingly to ensure your investments are working for your benefit without usurping your life.

5. Know when to hold ‘em or fold ‘em

The hardest decision most new investors face is when to sell their assets and when to hold on to them. Most find themselves tempted to hold on to rising assets rather than harvesting some of the gains while they can. It is tempting to hold on to it, hoping that it will rise just a little bit more. Most experts will advise investors to listen to the facts and figures that define your investments, not your emotions and feelings about where your investment may be heading.

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