5 Investing Mistakes to Avoid at All Costs

Investing can be one of the best choices to increase your income, and work towards long-term goals. However, there are certainly mistakes that practically everyone has made along the way. That's why today, we're going to look at the most common investing mistakes that investors can avoid. That way, you can rest easy knowing you've been given the right tools to work towards your financial goals.

1. FOMO

1. I'm going to get right into one of the worst mistakes many investors, especially new ones, fall into… FOMO. FOMO is an acronym for “Fear Of Missing Out” and describes the anxiety that exists about being absent from experiences when others are participating.
2. In terms of investing, this means to blindly following the crowd into popular stocks. For example, there might be a company that's being written about on Reddit or featured on financial media networks because its stock is seeing a massive increase in its share price. So, novice investors jump in and buy this stock because they're worried they'll miss out on an opportunity to profit.
3. We saw this occur with meme stocks over the last few years. Well-known companies such as AMC Entertainment Holdings (AMC) and Gamestop (GME) soared into the stratosphere before crashing down. Often novice investors wind up buying at the top of a move and then selling towards the bottom. 

2. Not performing your own research

You've heard from your friends, relatives and others that you need to invest in this company before it goes gangbusters. But this can lead to skipping over potentially the most important part of investing, and that's doing your own research. 

There are many factors to consider when deciding on whether or not to buy a stock and there are plenty of resources that can help you make that decision. Using fundamental and technical analysis is important, as is paying attention to updates from companies and prominent investors and analysts opinions.

All this information can help in your decision-making process and is more reliable than your neighbor giving you a stock tip at a weekend BBQ. 

3. Taking on too much, or too little, risk

Risk management is important and age is certainly an important factor in your investment strategy. The older you are, the less risk you want to take on. However, younger people can afford to take a higher amount of risk.

However, this doesn't mean that older people should just sock their money away in a savings account and younger people should put all their money into meme stocks.  A balanced approach at different stages of life is important. 

That's why meeting with a financial advisor can be a huge help during this process. They can help you with risk management, how much you can afford to invest, and where to invest.

4. Not diversifying your investments

Diversification is an important part of investing, and yet many novice investors only focus on a handful of investments. This can be very risky, as different sectors and industries can implode. Just think of the dot-com bubble, cannabis stocks, or cryptocurrencies over the last few years. Many people put too much money into these investments, didn't diversify, and ended up losing a lot of money.

Diversification will help you mitigate risk. Investing small amounts in a variety of asset classes, in a variety of geographical locations can protect your hard earned money from unforeseen circumstances that sometimes occur. So make sure you spread out your cash, and again a financial advisor can certainly help in this process.

5. Refusing to have a budget

A budget isn't just for your household expenses. It should also go towards investing as well.  If you create a simple budget, then you should be able to come up with a certain amount to invest with each and every month. Then, you can simply create automated contributions towards your investment account.

Then, once you see an asset that you think is attractively priced, you can use those funds and invest! Just make sure you're going over your budget about once a quarter, as prices, mortgages, bills and more all fluctuate during the year. If you do all this, investors can rest easy knowing they have enough income on hand, while still working towards their financial goals.