Sigita Strockytė-Varnė, SEB bank’s personal finance expert, advises what these mistakes are and how to avoid them.
Constantly monitor your investment portfolio and the markets
If you have chosen a periodic long-term investment and paid the first installments, you often want to keep an eye on how you are doing. Although it is likely that before you start investing, you have defined your goals, estimated the minimum time you will invest and set clear rules for yourself, it is only when you start investing that you check your portfolio much more often than usual and more often than you should.
You also start visiting news sites and monitoring financial market information. Of course, if you invest actively, such behavior will be purposeful, but if you have chosen passively managed funds and periodic investments, such actions will often be redundant.
The more and more often we monitor our portfolio, how the value of investment units changes on a daily basis, the more anxiety and questions we will cause to ourselves. We will worry when the value of the investment falls, we will be happy when it rises.
The more emotions you have, the more likely you are to make the wrong decision and abandon your chosen investment strategy when adverse circumstances arise. Especially if the investment portfolio is “in the red” at the beginning, it is possible to rush too early and simply sell all investments before realizing what value might have actually been created over the years.
Of course, you shouldn’t completely forget regarding your investments, but with passive investing, you don’t need to monitor and analyze every change in your portfolio every day.
Not giving your investments time to grow
Another common mistake, which also has to do with emotion, fear and impulsivity, is not allowing our investments to do the work they are meant to do. If the value of the investment falls, fearing an even greater loss, we rush to sell, incurring a loss. Conversely, if we see that the value of the investment is increasing, fearing to lose what we have earned from the change in value, we rush to sell and take a profit.
After recovering the invested amount together with the increase, it is once more necessary to find a decision on where to further invest the money – probably a larger amount than several tens or hundreds of euros per month. Then there is a greater need for analysis and accuracy of financial markets.
When we try to profit from the change in the value of investments, we buy and sell, this is called speculation, not investing. Speculation is not inherently a bad thing, but it is a high-risk investment strategy that we must understand what we are getting into.
It is recommended to speculate only with that part of the investment that it would not be a pity to lose. The goal of periodic investing should be to accumulate capital that will eventually become a source of passive income.
Follow trends
Nowadays, social media is full of all kinds of advice on where, how and what to invest. Chasing trends that have already been covered by all the opinion makers and news portals is often a fairly straight path to loss. If everyone knows regarding the trend, it is already too late to invest often and make quick profits.
When choosing a long-term investment strategy, it is important to know that it is impossible to explain and predict every short-term market change, because they are often random, sometimes based on the inexplicable behavior of investors.
If you plan to invest for at least a decade or more, you should rather watch long-term forecasts, which are much more valuable than short-term echoes in the market.
Invest money that you will need soon
Sometimes, when saving money for a bigger purchase and wanting to save faster, we think of investing the money we save. However, such a move is indeed very risky. If you choose fixed income securities, high-rated bonds and you are satisfied with the returns and time period offered, of course investing to save faster is possible.
However, if you choose higher-risk investments, from which we also seek higher returns, such a decision may not work – when the time comes to make a long-planned purchase, the time to sell the existing investments may be unfavorable, and the value of the existing investments may decrease. Then you will have to choose – sell the investment and experience a loss or postpone the purchase until better times for the markets.
For this reason, it is not recommended to invest money that will be needed, say, in a year or two.
In general, it is advisable to start investing at a time when you already have a financial cushion equal to at least three to six months of necessary expenses. After all, you never know what the future holds and what financial challenges you may have to face.
Delay investments
Despite the various fears of making the wrong decisions, the biggest mistake is being afraid and doing nothing regarding it. Or wait until the auspicious and perfect day dawns. Today is such a day.
The truth is that the hardest thing is to start Investing. The investment journey and all mistakes become valuable lessons that we need to learn better – sooner rather than later.
If we dare and start investing even a little periodically, we will accumulate capital, which will become the basis of financial security in the future.
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2024-04-23 13:00:34
