9 Rookie Investment Mistakes to Be Aware of

Whether you are new to investing or have been doing it for years, chances are you could be making a few common investment mistakes.

Very few investors have the acumen and profound insights of Warren Buffet. Hence, it is not rare for experienced investors to fall prey to investment mistakes.

Here are some rookie investment mistakes that even experienced investors make at times.

1. Not Knowing All the Risks

Most investors will concede that they have a low-risk tolerance. Yet, they are not fully aware of all risks inherent to their choice of investment.

Investors can make sentimental decisions or go for “gut instinct”. You cannot rely on intuition alone, especially when it comes to business. Unless, of course, you have the wisdom of Warren Buffet. But in all likelihood, you don’t.

You cant commit too much of your portfolio to one startup that you are emotionally attached to. Even if the startup is providing innovative goods and services that resonate with you, there is still a chance that the masses will not accept. Just because you like something, it does not mean that others will love it too.

Pay attention to diversification and resist the urge to put too much money on the startup you hope will be the next unicorn.

2. Not Focusing on Fees

Fees can be substantial and reduce your gains by a significant percentage.  New and seasoned investors are often astonished at the effects of high fees on their investment performance. This mistake is all too common.

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According to one survey, about 10% of investors do not fully realize the extent of their 401(k) fees. When they finally discover to their dismay that high fees have eaten up a lot of their gains, they will deeply regret it, but it will be too late by then.

So keep an eye on the fees.

3. Not Factoring in Tax

Few investors have a strong grasp of relevant tax rules that can affect their investments. Tax rules are complicated, no doubt, and a major hassle. But you can’t justify your lack of tax understanding by saying that you are not a CPA.

Besides knowing about all tax expenses, you should also know about tax benefits that you will get from different accounts. To minimize your tax expenditure, you should know all tax implications for various accounts, including IRA, 401(k) and Roth IRA.

4. Investing in a Niche and Business Model You Don’t Fully Know

Investors feel tempted to invest in individual companies that they have put their faith in. They believe that returns on such investments will be greater, so it is worth committing your portfolio towards individual companies that you find promising.

If you go this route, then make sure that you fully understand the business model. Don’t just believe the hype. Just because the startup has its name on the slick business magazine, it does not guarantee that it will be successful tomorrow.

So do your research to fully assess the risks and opportunities.

If you don’t fully understand the startup’s business model or the niche it is operating in, then it is better to invest in mutual funds or exchange-traded funds.

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5. Unswerving Loyalty

In the world of business, you have to be, well, business-minded. There is no room for capricious or whimsical decisions. You can’t fall in love with a company and hope against hope that it will thrive when there are clear indications and warning signs of imminent collapse.

Don’t ignore the warning signs. No matter how passionate you are about the companies you invested in, you must sell your stocks when there are sure signs of trouble. Don’t think you are betraying their cause. Save your money so that you don’t go down with a sinking ship.

6. Over Management

Managing your portfolio is one thing but constantly switching stocks is something else altogether.

You can’t bail out of a stock if it showed a slight fall during the trading. Ups and downs are inherent to even high-performing stocks. So play it cool instead of reacting to everything.

7. Active Vs. Passive Funds

Research indicates that actively managed funds provide less returns over the long term than passive funds. Not only do human managers often fail to outperform the index (which is the prime objective of actively managed funds), the high fees often reduce returns even further.

You are better off with passive funds since not only will your portfolio performance fall below-market performance; you will also save on fees. You will also save a lot of time since you do not have to manage your investments.

And you can rely on the index to provide decent returns since the historical returns rate of stocks has stood at about 9%, which is very good.

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8. Over Investing in Bonds

Bonds are considered a safer investment since there is a lower risk of losses. However, since their returns are so low, you could end up losing a lot of money in the long run on these ‘safer’ choices. Bonds return around 3 to 4 percent at best over the long term compared to the 9% of riskier stocks.

9. Not Using the Right Savings App

No matter how frugal you think you are, you can benefit from a really good saving app. The Doctor Money App can help you to save more and thus add more to your investment portfolio. You just can’t save enough for your retirement. Hence, even if you save regularly, you need the Doctor Money App to increase your monthly contributions.

And if you have problems saving money, then the Doctor Money App is an absolute smart saver. With this app, you can gradually improve your spending habits and save enough money in time for your retirement. Even if you fall behind on your savings target, there is still hope for you with the Doctor Money App.

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