Many of our articles are aimed at relative newcomers to investing – and we always try to explain any technical terms as we go along.
You’ll often see suggestions of what to do and what not to do, but there are times when taking what feels like the right approach can actually be a mistake.
Here we take a look at five intuitive approaches to investing that prove to be misjudged for many novice investors.
1. Taking your time
A lot of would-be investors bide their time for so long that they never end up investing at all, and that’s not good when you could have a steadily growing portfolio in the meantime.
Yes, your money is at risk when you invest, but you should never invest money you can’t afford to lose.
Eventually, you have to choose something to buy, and just start buying. There’s only so much preparation you can do before you actually start investing.
Rather than delaying for longer and longer, find a relatively low-risk investment and buy into it, and you can start to build outwards from that fairly stable centre point.
2. Researching stocks
There’s an endless array of stocks and shares, bonds, commodities, funds and indexes to choose between.
Researching individual stocks is by no means the wrong thing to do, but try not to get too bogged down in investigating individual companies.
Ultimately it’s not a profitable way to spend your time – and especially when you’re new to investing, it can be wiser to spend that time reading up on the general terms used when talking about investments.
Once you have a good general grounding in the terminology of investing, you’ll be much better placed to consider stocks and shares one by one if you want to micro-manage your portfolio to that extent.
3. Making comparisons
Even if you go ahead with researching specific stocks and shares, try to resist the urge to compare them against each other.
While there are certain characteristics they may have in common, the stock market as a whole is fairly chaotic and it’s not often that you can learn a lot from a side-by-side comparison.
Instead, try to judge each investment opportunity on its own merits. If it will make you an acceptable profit, buy-in.
Not every investment needs to achieve eye-watering ROI, but by buying into lucrative opportunities when they come your way, over time you can dispose of those that perform less well and start to accrue some really substantial value.
4. Perfect timing
Any novice investor will generally understand the principle of buy low and sell high, but what many don’t understand is that you don’t have to time it exactly right.
If a stock is already rising and you missed its lowest price, it can still be worth buying to benefit from that upward tide.
Likewise, if the market is falling, it can be worth disposing of some stocks for less than their peak value, compared with the prospect of waiting for them to recover.
Just remember also not to panic in a falling market – if selling your stock would make a net loss overall, the best thing to do might be to hold on to it anyway and let it bounce back from the bottom of the current curve.
5. The finish line
Investing doesn’t end once you’ve placed all of your funds into stocks, shares, bonds and so on – in fact, that’s just the beginning.
A portfolio is a fine balance between buying and selling. The more of it you have in cash, the more of your time you should spend on researching opportunities to buy into.
Meanwhile, when most of your money is invested, you might want to pay closer attention to what the markets are doing so you don’t miss the chance to sell at a substantial profit.
At times, perhaps even for a long time, you might not make any transactions at all, such as when all of your funds are invested in rising stocks you believe in for the long term.
But remember the lessons above – avoid excessive research and misleading comparisons, and don’t worry unnecessarily about timing – and you’ll be ready to sell when the market hits its peak.
Disclaimer: The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.