Most personal investors are not experts, and not everyone will seek out financial investment advice before pursuing monetary opportunities. There are many common errors novice investors tend to make, though, and without prior knowledge, there may not be a good way to avoid them. Here are some of the biggest, most frequently encountered errors and how to avoid them.
Leaping before you look
Everyone has heard that story about a friend who could have invested in Google before it became a big deal. Sometimes it may be a different company or the circumstances surrounding the opportunity, but just like any fish story, there isn't much wisdom in following impulsive investment strategies.
The temptation here is rooted in a similar mindset as the lottery: Any investment could be a big winner. As MoneyControl pointed out, investors need to be a little more level-headed to make smart decisions. People need to look closely at any expense before it is made – you wouldn't buy a house without looking at it first, or a car without a test drive, so why not look at the history of a certain stock or company before sinking a lot of money into it.
Build an estate
You don't need a big house, a giant bank account and a huge stock portfolio to warrant having written orders regarding your personal finances in the event of an accident. Living wills are just as important as end-of-life decisions, and many people fail to recognize or follow through on the need for these documents. Considering all the pieces of a person's physical and financial life, the amount of disarray to be handled by friends and family can be daunting, especially in the wake of a disaster.
There are a lot of misconceptions surrounding the process involved in creating and securing an estate, as well as all the pieces that comprise one. Online resources and experienced planners are the best assets a person can have, but simply thinking they are out of reach means many will miss out on these opportunities.
Get some advice
Again, the theme of not listening comes up. For those who don't even look for financial investment advice, failure is almost guaranteed, unless the person in charge of a portfolio has previous experience, or else is really lucky. Not all planners and investment specialists will charge for consultations, depending on the forum, and other times community banks offer these services to existing customers.
"Typically, they're feeling overwhelmed because they're trying to attack everything at once," Richard Gable of the Houston Police Officer's Pension System told Financial Planning Online. Usually when people start thinking about long-term interests and investment needs, they think of it too late or jump into it too quickly, he explained. People need to take a step back and make sure they are using their assets in a smart and responsible way, or else funds can quickly be wasted.
Before getting into trouble with a financial plan, try thinking about a scenario as if it was someone else instead of yourself in that position. If something doesn't seem to fit with your scope or goals, feels too risky or simply doesn't sound right, take a step back and reconsider. Chances are with a better financial calculator you can get the math to work out right on your investment strategy.