5 Common Amateur Investing Mistakes to Avoid

So you’re a new investor? Congratulations on making a good move that’s likely to improve your financial health over time. However, investing is just like anything else: it’s easy to make mistakes when your first start out.

Here are 5 common amateur investing mistakes to avoid.

1. Following the Herd

Sometimes, the majority isn’t right. In fact, sometimes, “everybody” is wrong.

When you see people piling into an investment just because “everybody else is doing it,” then it’s time to run, not walk, away from that opportunity.

Why? Because when people flock to a particular stock or investment option, then they’re creating what knowledgeable investors call a “bubble.” They’re inflating the price of the asset.

Bad news: bubbles burst.

You don’t want to be left holding the bag when the bubble on that investment opportunity breaks. Just stay away from it all together and let other investors rush to their ruin.

Sometimes, it’s best to follow the advice of expert investor Warren Buffet. When other people get greedy, you get fearful and when other people get fearful, you get greedy.

2. Following “Tips”

As CNBC personality Jim Cramer likes to say: “Tips are for waiters.”

If you’re hearing that the ACI stock is a solid buy because of some news that hasn’t been made public yet, then you might be tempted to load up on the stock thinking that you’ll earn a big return.

You could also go to jail.

If someone is telling you something about the company that the public doesn’t know, it’s likely that they’re practicing something called “insider trading.” That’s a crime.

3. Trying to Get Rich Quick

If you think that the stock market presents an excellent opportunity to make a million dollars overnight, think again. While some people have gotten rich quick with the stock market, that kind of “no guts, no glory” strategy is the exception rather than the rule.

However, if you view the stock market as an excellent long-term investment opportunity, you’ll have a better chance at success. You might not make a fortune in just a few days, but you could set yourself up for early retirement.

4. Failure to Diversify

As the old saying goes, you don’t want to put all your eggs in one basket.

You might think that a particular company is going nowhere but up over the next several years. As a result, you’re tempted to put all of your hard-earned savings into that one company.

So what happens if that company goes bankrupt instead of growing like you expected? You’ve put all your eggs in one basket and lost your savings.

That’s why it’s good to diversify. Put some of your money in one stock, some more in another stock, and so on. That way, if one of your investments tanks, you don’t lose everything.

5. Refusing to Accept Losses

It’s this simple: if you make investments, you’re probably going to take some losses. That’s just how it works.

Prepare yourself ahead of time to accept the fact that some investments aren’t going to go your way. However, even with those losses, a sound investment strategy should still yield a positive return over the long haul.

Investing is a great way to build your wealth. Like anything else, though, you have to do it right if you want to enjoy the benefits.