You have probably been told that you can make a lot of money from investing, but you also know that not every investor makes money. Investing requires a lot of expertise and a little bit of luck. If you have been investing for some time now but are not making money or making less than you should, then it is either you are a very bad investor or you have terrible luck. Most likely, it is because you are a bad investor.
Most people view themselves as better than they are, so even if you are a bad investor you may not know it. Of course, your inability to make money investing should clue you in, but at times it is not enough. In this article, I will finally lift the veil from your eyes, so you can finally see yourself for who you are: a bad investor.
1. You know nothing about investing
There is absolutely no way you would be good at anything without first having in-depth knowledge about it. However, some people invest without first acquiring the basic information about investing. If that describes who you are, then the only thing to do is to stop investing right now and devote your time to learning.
There are various resources available online that you can learn from. You can read blogs, watch videos, listen to podcasts, and buy books. If learning on your own is hard, you can ask others more knowledgeable about investing to teach you or even employ a financial advisor to coach you.
2. You only invest because you were advised to do so
An investment is not always good just because an investment consultant suggests it. It might be a warning sign if you seek advice from an investment consultant and they strongly advise you to buy a certain stock.
Human nature may cause a broker to suggest a more expensive investment over a rival as certain investments pay larger commissions than others. Before investing, always find out how an adviser is compensated. Working with a fee-only financial adviser is thus often the best option, and you should confirm that they are recognized by the government or any authorizing body.
3. You borrow money to invest
A rule of thumb when investing is to never invest money you can’t afford to lose so it would be very unwise of you to invest money that you don’t have. An investment may not be the greatest choice for you if you are unable to pay for it entirely and want to borrow the funds.
To make things worse, you may have to pay interest on the loan you collected. Even if you make money from that investment, almost all of it will go to covering the interest you owe. And if the investment falls through, you end up worsening your financial situation with a loan.
4. You don’t care about the fees
When investing, you will most likely use an investment broker or an investment platform, and they usually charge a fee for their services. The higher the fees, the less returns you will receive from that investment. Investment fees should not exceed 0.5-0.75%.
A fee of more than 1.5% is exorbitant and you should not investment with the platform or broker.
5. You ignore red flags
Some stocks are just too good to be true, or the risk involved may be so high, it cancels out any profit you may make. You should always trust your intuition when investing, and seek advice when you are not sure. If you have a bad feeling about a stock don’t buy even if the stock seems to be doing well.
6. When a stock is rising you feel pressured to buy
When a stock is growing, it may be easy to be sucked into it. It appears to be rising every week, so you may feel pressured to purchase now to keep up with the trend. This hurry, however, is seldom a good thing.
Just as suddenly, high-flying equities might drop in value, leaving you with much less than you started with. If it’s a really good opportunity, you can purchase when you have a greater understanding of the investment since good stocks often move upward for years, if not decades.
Being pressured to purchase an investment right away in order to avoid “missing out” is a serious warning sign. If someone is pressuring you to send money right away, it’s either a fraud or at the very least, an indication of a “hot” investment that’s probably going to drop soon. Stick to long-term, essentially good decisions instead.
7. You don’t do research before investing
You should not invest because a stock seems to be doing well or because many people are buying it. If you invest, it should be because you are confident that that stock will do well in the months and years to come and you can only know that if you do your research.
Investigate a stock’s price-to-earnings ratio and look for assets that are reasonably priced or undervalued as opposed to those that are trading at a high ratio. A stock may be on the verge of a decline if its valuation increases steadily but its profits stay the same or decline. Stock prices are usually driven by profits, therefore it’s risky when a company’s stock price increases while its earnings fall behind.
You should steer clear of an investment if it is so complex that you are unable to express it in plain English. An investment isn’t always superior to a straightforward one just because it’s complex. With so many options for earning money, stick to what you know so you know what to anticipate.
8. You only go for risk-free stocks
There is risk associated with any investment. Even comparatively secure assets, such as bonds, include some risk.
If someone tells you that an investment has no risk or that returns of a certain percentage are assured, then that person is either dishonest or lacks sufficient knowledge about the investment, both of which are concerning. It would be wise to steer clear of this kind of offer completely since it often indicates an investment fraud.
9. You make purchases that are not in line with your objectives
Having and following an investment strategy is crucial, and generally speaking, you should only invest if it fits with your objectives. If it doesn’t fit your financial objectives, it’s probably not the appropriate choice for you, regardless of how high the prospective returns are.
You should determine your investing goals before making any investments. Do you need income or do you want your capital to grow? What about combining the two?
For instance, pensioners, who often need a steady stream of income, may not be the best candidates for a diversified stock portfolio, even if it has been a wonderful long-term investment despite occasional large failures.
Perhaps you will soon be retiring and cannot withstand this kind of volatility, or perhaps you just cannot bear to see your money plummet overnight. Your requirements must be met by the investment.
10. You follow the trend
You shouldn’t purchase an investment just because someone else is, especially if that someone is a well-known investor.
Investors have varying time horizons and objectives, and other people’s motivations for stock ownership may be entirely at odds with your financial requirements. Look for investments that suit your needs, not those of others.
When promoters are praising a stock, it is often best to steer clear of it. Either do your own research or follow the recommendations of reliable investment experts.
Conclusion
The world of investing is very challenging; there is often no place for bad investors. To do well, you must be knowledgeable, smart, and lucky.
If you fall into the category of a bad investor, there is still hope for you. The first step is recognizing where you fall short and then making a conscious effort to change. In no time, you will become a good investor, or even a great one, and eventually start reaping the rewards of investing.
