4 Common Investment Mistakes and How to Avoid Them

If there's anything the 2020 stock market crash has taught us, it's that staying calm and having the power of knowledge and foresight on your side is of the utmost importance. As the US stock market gets more volatile, so have people's reactions.

Take a deep breath and refrain from falling into these investment potholes if you're new to the market.

1. Looking Back to Assess Future Performance

A historical analysis of your investments is the last thing you should do as an investor. With increasing regulations and global uncertainty, there's no saying how the future of a market will pan out in the coming years.

Predicting the market by looking at past trends may work sometimes, but it's the equivalent of looking into a glass bowl to predict a future that doesn't exist yet. You can, however, look at the past performance to assess your risks before buying stock.

2. Quick to Sell Stocks

Unless you're day trading, you shouldn't sell stock as soon as you've bought it because it's experiencing short-term volatility. Numbers don't lie, but they also don't tell the whole story.

If you want to be a long-term investor, don't see its past or present as an indicator of its future performance.

3. Overdiversifying

Portfolio diversification might be the go-to tactic to dilute risk and increase profits, but, like most things, it's only good in moderation. In the context of the markets, this indicates the nature of your securities.

If you're diversifying with high-risk profiles whose rise and fall are determined by the same factors, you might experience more than one or two crashing stocks simultaneously. Thus, instead of making money, these stocks might become a liability and result in panic selling.

4. Waiting to Break Even

Waiting too long might be on the other end of panic selling, but the two are more similar than you think. The only way a long-term investor would wait on a dropping stock is if they know the market inside-out.

They would never keep securities that don't have anything to recommend them, and you shouldn't be any different. Waiting on a market to rise again may have the following consequences:

·You might see the stock drop even further and incur heavy losses.

·You may not have enough capital to invest in rising securities.

You need money to invest, and tapping into your savings is undoubtedly the best way to get it. If you find savings to be an elusive concept, allow Francisco Faraco to help you understand them. As a CFA Charterholder and Teaching Assistant at the University of Chicago,

FINRA Brokercheck Francisco Faraco knows quite a bit about paying loans and saving money in today's economy.

Start saving and find ways to multiply them with FINRA Brokercheck Faraco's guidance.

Disclaimer: This article should not be used as a substitute for investment advice from a licensed professional. Readers must consult an SEC- or state-registered investment advisor for further clarity on the information presented in the text and possible solutions.

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