A new year offers many a clean slate, a chance to start afresh and make the correct decisions moving forward. If you want to better yourself financially, then a great way to do so is through saving and investments. There are numerous options available in the financial realm when it comes to investments. Whether you want to put away R500 or R5000 per month, there is something for you.
It’s easy to make mistakes when investing, and most of the time people do not understand their investments. For those who do not give up on investing, they learn from their mistakes – but as Warren Buffet has said: “It’s good to learn from your mistakes. But it’s better to learn from other people’s mistakes.”
Here are investment mistakes that you should be weary of when you take that first step.
Lack of understanding
Do not invest in something you do not understand. This is fundamental in your investing journey, if you don’t understand your investment, there’s a chance that you do not understand the risks that come with that investment.
Tips to stay in the know:
- Use your trusted financial planner;
- Do your research. For example, if you want to invest in individual stocks, ensure you completely understand each company those stocks represent before you invest;
- You can try to avoid loss of money (if you already invested) by diversifying your portfolio;
- Follow the news, you need to know what is happening to aid your short, medium- and long-term planning.
Making decisions based on emotions
As human beings, we are generally controlled by our emotions. Fear is one of the emotions that lead people to make irrational decisions. Many financial market analysts say most people want to get rich as quickly as possible, so they end up being greedy. This greed dominates the market during a boom, whilst fear prevails following its bust.
Do not let fear and greed make you lose focus. You should focus on the bigger picture, especially where you hold a long-term view on your investment. Your returns might not be pleasing in a short-term space, however, from a long-term perspective, you may benefit from the irrational decisions of other investors.
What to remember:
- The important thing to remember here is that you are investing to secure your future, so most of your goals are long-term.
- However, if an investment is not in your best interests, then you should change or leave it (based on rationality, not emotions). Remember to seek advice so that you make an objective decision.
Lack of patience
Things will not always go your way, and without patience you’re only destined to fail. You need to keep your expectations realistic regarding the time and growth that each investment will encounter. If you are an investor, then it is important to remember that it’s less about timing the market, but more about time in the market that creates wealth.
Now that you know what mistakes you should avoid, here are some tips that will help you make the right decisions. The previous year was tumultuous to say the least. Many people felt the impact of the pandemic in their pockets and turned to their investments to keep them afloat. Now, it’s time to rebuild.
There’s a popular expression that says, “slow-and-steady wins the race”, which essentially means consistency, although progress may be slow, will eventually be more beneficial than being hasty or careless just to get something done. This directly applies to investing – with patience, you’ll see everything clearly overtime.
Here are some tips to keep in mind:
- Enlist the help of a financial advisor
- Construct a Financial Plan in alignment to your life plan – have SMART(what does SMART stand for? Investment goals
- Keep learning and be teachable
- Be prepared to go through valleys, knowing that with the correct investment strategy, you will achieve growth over the full investment cycle.
Lloyd Buthelezi, Head of Standard Bank Financial Consultancy