A wise man once said that much of life comes down to showing up prepared, and it’s true. Often, success in a venture comes more from starting correctly than what you do once you’ve started. In the vast and complex world of financial investing, there are myriad mistakes to be made in every step of the process.
While your budding financial career can survive a few honest mistakes, and more than a few if you’re lucky, a single stupid mistake could sink your ship before it ever leaves the dock. Fortunately, stupid mistakes are relatively easy to avoid, but you’d never know that based on how common they are.
Not Knowing the Language
When you step into any new territory, learning the local language is usually a great idea. The financial arena is no different in this respect. Without a functioning fiscal vocabulary, the only thing that will be more lost than you during your investment career is your hard-earned cash. Be sure to study websites such as Etrade and Investopedia to start talking like a future online millionaire.
Starting Out with Real Money
Let’s face it, you’re probably not going to be an expert at investing your first time out. In fact, it’s safe to say you’ll probably be fairly bad at it for a while. Why lose actual money before you have to? Practice extensively with an online investing simulator to hone your investing savvy. It’s much less stressful to lose $100,000 on an unexpected market turn when it could not have been otherwise used to buy a Ferrari.
Find the Right Brokerage
Now that you can successfully pretend to make smart investments, the next step is to find a place for you to apply these skills to making you actual money. An online brokerage firm is your direct access into the market, and many also provide investors with helpful services to help them achieve financial success. Think of an online brokerage firm as your business partner, right down to taking a cut of your earnings.
Many firms will try attracting new investors with low trading fees, but the distinctions lie in the other factors. Some brokers charge for account activity such as money transfers. Some have minimum balances that must be maintained at all times, which could be a problem if you have a limited amount to invest immediately. Shop around and compare brokerages and their services to find the best place for you to rake in the cash.
Not Finding and Sticking with the Right Investment Type
Deciding to invest is one thing, but how do you decide exactly what to invest in? The most common of these are traditional stocks, shares in a company which fluctuate in value based on its perceived performance. However, there are also mutual funds, an investment of a pool of stocks owned by a group of people and managed by a professional investor as well exchange traded funds, or ETFs, which are investments in a particular market index as a whole. All of these have different strengths and weaknesses which should be thoroughly researched before you invest a single penny.
Once you find the right type of investment, it is important to be patient. The nature of investment is one of relative instability, and often those who take their money and run at the first sight of trouble find it very difficult to regain their holdings when things turn around.
Also, frequent trading can also incur fees and tax liabilities that add up over time and begin to eat into your investment capital. As long as the company or mutual fund continues to display decent financial healthy, you should eventually at least recover any short-term losses if not experience long-term gains. The key is to have a solid understanding of your investment, which leads us to our last surprisingly common stupid mistake.
Reading is fundamental in life, and this especially applies to investing. Read everything. Read emails from your brokerage. Read news articles and online resources related to the companies and industries your money is tied to. Read the company newsletter to learn of any changes that could impact your investment.
Read the paper or news sites to discover developments that could indirectly affect your investments, such as an increase in gas prices or rumors of reforms in a given industry. If you think you’ve read enough, read something else. There is no such thing as too much information about your investment. Seeking knowledge is the most profitable investment you can make, because the alternative is just stupid.
(This is a Guest Post by Peter Lawson)