4 mistakes first-time investors are always making, according to financial experts

young man using cell phone

Summary List Placement
If you don’t have a good investment strategy when you start out, you could lose money.
Investing money you can’t afford to lose, timing the market, and following trends are bad strategies.
Instead, you should focus on a long-term approach and a diversified portfolio. 
Vanguard Personal Advisor Services

It’s easier than ever to invest in the stock market thanks to investing apps, and millions of Americans have gotten on board since the start of the pandemic.

In 2020, interest in investing apps like Robinhood surged, with retail trading rocketing up 25% thanks to activity by new investors. More recently, the excitement around GameStop and other meme stocks saw new investors flocking to investment apps once more.

But for most first-time investors, scoring a big payday by timing the market is unlikely. In fact, you’re more likely to make a mistake that will cost you. Below, financial experts share the mistakes they see first-time investors making over and over — and what to do instead.

1. Not building a solid financial safety net before investing

There are a few things you should achieve with your money before putting it into the stock market, says Adam K. Wright, financial planner at Wright Associates.

Paying off bad debt, such as credit card debt or high-interest loans, should be a priority. Bad debt is considered anything purchased that doesn’t grow in value. The higher the interest rate, the worse the debt becomes. Before investing, you should be at a point where you are able to pay off your credit card bills every month.

Wright says you should also have an emergency fund set aside that covers at least three to six months of your expenses before throwing money in the market. The higher the likelihood of losing your job, the more money you should have set aside.

2. Following social media trends without doing your own homework

Jovan Johnson, financial planner at Piece of Wealth Planning, has noticed a growing trend of young investors being guided by social media influencers or their own friends. Some influencers will tout their gains and show their brokerage account’s growth in a video, then share advice on stocks their followers should buy. But investing without understanding a company or its trajectory is a big mistake, says Johnson. 

“For example, the GameStop situation, it all sounds good, but without understanding how investing works and the risk involved, people that bought into Gamestop a day too late — they lost,” Johnson says. 

No matter how great something sounds, it’s always important to do your own homework and understand a company’s value so you don’t end up investing in a stock that’s over-inflated or a company that’s failing. Focusing on exchange-traded funds (ETFs) is one way of avoiding the volatility that’s often associated with investing in single stocks. ETFs are an investment vehicle that pool together a variety of assets that help diversify your portfolio. 

3. Not …read more

Source:: Business Insider


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