Investing mistakes hurt.
I know this because I have made a lot of investing mistakes since I started investing.
When you make these mistakes, you lose a lot of money, but even worse, you get further
and further away from achieving your goals.
Avoiding the common mistakes is oftentimes better than making the right investment decision,
because the mistakes almost always cost you more money than the good investments bring
you.
The first rule of Warren Buffet is: "Never lose money" and the second rule is: "Never
forget rule 1".
Warren Buffett also knew that it is faster to lose money than to earn money when investing.
And that's exactly what we're going to talk about today: Avoiding the common 5 investment
mistakes so that you lose less money in the future and can increase your future profits
with your investments!
But before we dive deeper, hello and welcome back to our channel!
We are the finance nerds and we have gained a lot of experience and were able to learn
from private asset management companies how they manage funds, what they pay attention
to and how we can apply the whole thing for us.
We pass this knowledge on to you on this channel and we also go deeper
into topics that affect your personal finances such as budgeting or saving money, so you
can achieve your financial goals and be more relaxed about your finances!
And with that being said.. let’s start!
Unrealistic Expectations The first mistake most people make is to have
high and unrealistic expectations.
Everyone knows it, the hope to make a fortune overnight with an investment.
However, let's be honest, this is often not the case and we are only in a bad mood due
to such expectations, which will lead us to make many bad decisions in the future.
Investing is a long term game and those who don't understand this and hope to make big
money overnight have no business in the stock market and it is only fair that these people
lose money.
Expectations that are too high lead to bad decisions, bad emotions and bad investments.
On the other hand, dream returns of 10%+ are often a sign of unserious providers who end
up costing you even more money.
I don't want to say that it is not possible and never happens.
I have also achieved such returns, but you have to see the whole thing in the long term
and admit that you don't make such returns every month, because otherwise you will be
the new Warren Buffet in a short time.
Warren Buffet makes an average return of 20% per year and he is one of the top investors
in the world, so it seems almost unrealistic to think that you can have a better return
than him.
So what I can only advise you: Plan rather realistically or even a little less return
and plan over a longer time horizon.
No one in this world has the crystal ball, whether the price really rises or falls and
especially no one knows how fast and how high!
No Clarity about risk The next big mistake that many make or that
really costs a lot of money is that they have no idea what their risk profile is in terms
of investing.
And everyone is different, no one can really tell you how to calculate the risk of an investment
based on your situation, because no one knows your situation as well as you do.
For one person it is no problem to see 1-3 years of falling prices on his investment
and then profit from it for 5-10 years, and the other person literally goes crazy as soon
as the price moves against him just once.
For one person losing $10,000 is no problem and for another it means financial ruin.
Therefore it is important for you personally to know your risk profile and for this a few
questions help: What are you willing to lose or what can you
lose without it hurting you?
What is the maximum time you would be willing to see falling prices?
These questions are incredibly important, because I can tell you one thing: You will
have loss investments, but they should not emotionally burden you so much that you make
wrong decisions based on them.
Secondly, your goal with any investment should be to have a high risk/reward ratio, meaning
that when you evaluate a stock or investment, there should be more reasons for it to go
well than for it to go badly for you, and it should offer the possibility of making
more money than losing money.
Also you should define the criteria for yourself, when you get out of an investment, such as
when you notice that the sales of the company are declining or something has changed politically.
And this brings us directly to the next mistake
No Diversification Lack of diversification in the portfolio can
be the decisive reason whether your portfolio survives or fails in times of crisis.
But what exactly does diversification mean?
It means that you don't put all your eggs in one basket, based on your investments of
course.
The reason is the following: In the stock market we only trade according to probabilities
and this will never change.
Nobody in this world has a crystal ball and can tell you whether the price will rise or
fall or when it will rise or fall.
And every form of analysis has only one goal: to determine the probability of the case occurring
or to determine which event is now more likely, namely whether the price is now rising or
falling.
But if we do everything according to probabilities, then it is also likely that your investment
is a loser and if you have invested all your money in it, your money is gone.
But it gets worse: Diversification is also supposed to protect against correlations.
Now ask yourself what correlations are.
Correlation means that for example between 2 markets there is a relationship, which can
either be that when the price of market 1 rises, the price of market 2 falls or they
run parallel.
As an example often serves the gold and the share prices.
If the share prices rise often the gold price weakens, because in "boom phases'' investors
often set on share prices in the hope of further profits and distributions.
And the "uninteresting gold" appears not that attractive.
But in uncertain stock exchange times more attractive again.
Therefore it is of great importance to diversify not only with different shares, but also between
several markets.
As an example, it is recommended to include a few REIT's into your portfolio.
These are Real Estate Trusted Funds and are ultimately only companies that focus on profitable
real estate.
The housing market has relatively little correlation with other markets and is therefore a perfect
addition to minimize risk.
No Investment Plan and Strategy This mistake not only costs a lot of money,
but it also leads to the fact that you end up investing crosswise, without reason and
in the end you don't even know what you are doing.
Without a sensible investment plan and strategy, you are lost on the stock market and should
stop investing altogether.
The reason?
You have absolutely no idea what you are doing and can't even answer afterwards if you followed
your plan or not, which leads to the fact that you can't draw any conclusions for the
future to make better decisions in the future.
The core of your plan should be to have an edge.
You can think of this edge as going to the casino only with the rock-solid knowledge
that you will win more than you lose at roulette and that is what your investment plan should
include, how you will win more than you lose.
In addition, it should include what criteria must be met for an investment, when you get
out and when you take profits.
And to do that exactly you need knowledge and that's where we come to the next mistake.
Starting before you are ready As soon as many have decided to invest, they
can hardly wait to make their first investment and try it all at once, come hell or high
water.
The big mistake?
They usually know absolutely nothing.
They don't know what they are doing, they don't know what they are really investing
in, they don't know why the investment makes sense now or not and in the worst case they
invest because the news says that company XYZ could be the boom now.
If you recognize yourself in this....
STOP.
Take a deep breath and shift down a gear.
As I told you at the beginning, these mistakes cost you more money and they set you back
even further.
Therefore, acquire the knowledge first and then start.
We're thinking of equipping you with the right knowledge in the future in the form of a video
course, where we explain to you from A-Z how we invest.
If that sounds interesting to you, feel free to let us know with a comment and just comment
with "Let's Go!".
Start yourself now with reading books about investing, invest in yourself and buy a course
or if you don’t want to acquire the knowledge get professional help from a financial advisor.
If you want to take full control over your finances, watch this video right after this
one!
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We hope to see you in the next video.