We all must have heard the saying: we learn and grow from our mistakes. Being perfectly true, but in case of the stock market, one mistake may yield severe consequences. As a first-time investor, you may be confused about which good stocks to invest which may bring benefits and involve less risk. Even though a novice investor will not know much about the stock market, they can achieve their goals with the help of a thorough guidance by someone of experience. These are some mistakes commonly made by first time investors in the stock market.
- Better to know than to regret
Normally, whenever we start any work, we should be having proper knowledge of all that surrounds it. No differently, a first-time investor should properly research to get complete knowledge about the stock market. If you’re hiring a financial planner you should know about the fees, cost and their services. You will have to search about the company, their current trends, trading patterns and business plans etc.
- Not paying attention to the losses
Losses are quite likely if investors are investing their money in stocks that mounting up the losses. The best stocks for first-time investors would help avoid losses but one needs to know the losses properly. The mistake that first-time investors make is to cling to a company’s losing position in the hope of it getting better overtime. You will need to take quick action if you get to hear about stock market rate changes and then stop investing in that company.
- Ultimate solution for a first-time investor: diversification
A better option for you, as an investor would be to invest in different stocks rather than investing savings to buy stocks from a common source. Also consider investing in international stocks because modify your portfolio look. Alongside this would save you from any unseen consequences in case of loss in the same type of stocks. With diversification leading to better results, you should always be aware of where to enter or leave from a particular stock purchase.
- Overusing leverage or margin
It is usually the worst mistake made by a first-time stock buyer who, without knowing the worst effects, borrows money to purchase securities. In their belief of getting free access to money in order to but stocks, they may buy stocks which may not be suitable for their financial standing. In case of the market not going as expected by the investor, this would result in debts on him that may be incurable. Hence, rather than considering margin the last resort, it should be considered an accessible option.
- Follow others in what they’re doing
For new investors, it’s always difficult going against the crowd, taking an individual risk which others wouldn’t take. So, they end up following traditional investors in investing in stocks which are either getting off the market or are too high for newcomers. Following this expert group of investors handling exiting trades, they are trapped in the illusion of development and growth.
Although stock markets are changing rather fast, first-time traders should not hesitate in investing in different stocks. In order to flourish in the market, what they should do is to look out for these common mistakes and try to avoid them.
Michael started with a master’s degree in finance before he went into technology and coding. He is now a freelance journalist and video producer living in Berlin, Germany. When he doesn’t write, he will travel many countries.