Intro to Investing For Students Pt. 2
5 Mistakes NOT to Make
1. Having Unrealistic Expectations
Before you start investing, it is extremely crucial to understand for yourself how much return you are expecting from your investments. Whether it be 5%, 10%, or 15% on your principle investment, don't expect your returns to be quick and high; it's just not realistic.
Investment machines liked Fixed Deposits usually give three to four percent per annum and are usually risk-free; expecting return percentages higher than 5% to be risk-free is not realistic either.
Even investing in ETFs such as the S&P 500, which historically gives an annual return of 9%–11%, doesn't guarantee that you will be earning returns within that range every year.
2. Not Diversifying Your Portfolio
This mistake has humbled the fresh and eager investor for decades. But first, what does "diversifying your portfolio" even mean?
It is an investment strategy that sees you investing in a variety of different assets that are spread within a singular industry to multiple different industries.
This investment strategy is absolutely crucial because if you find yourself investing all your expendable capital into Apple and suddenly Apple's value plummets all the way down, your investments go down the drain as well.
Placing your capital in a variety of different assets, be they stocks, gold, funds, or bonds, minimises your losses and secures your gains.
3. Not Planning Your Investments
Every investor needs to plan out the 'how' and 'what' of the investments they make. Determine when your investment cycle will begin, how much you are willing to put in, what risks you are willing to take, what losses you are able to stomach, etc.
Know why you are investing and plan accordingly. Nobody likes to dump money into an entity that they "like" and then realise that the losses are too high to handle.
Plan every step and take the necessary precautions that are suitable for your risk appetite.
4. Doing Little to No Research
Probably one of the most important things to do before you start investing is 'researching'. Investing can be quite technical and requires a fair bit of research; however, if you put enough time into research, your chances of making better decisions about your investments increase significantly.
Researching builds confidence in the investment decisions you make and also teaches you what information is good and what is just mere puff.
5. Not Evaluating Your Portfolio's Performance
Investing is both a discipline and a responsibility for your own finances. The same way we students evaluate our work with scores on assignments or exams and adapt our learning to them, there also needs to be an evaluation of investing.
However, don't react emotionally if your investments start to perform poorly all of a sudden; poor short-term performance doesn't need a complete re-evaluation of your investment plan or strategy; it just needs to be looked at with more attention.
If your investments in assets outside of index funds are doing poorly consistently over the long term, that is when you need to re-evaluate your portfolio.
Never, or at least try not to, just dump your money into assets and forget about them without realising your losses. Pay attention, strategize, and restructure your investments based on your personal investment goals.
These are five investment mistakes not to make. Investing isn't an older person's hobby; it's a vital factor in determining the speed to achieve financial security. So don't be afraid to take risks, and most importantly, take control of your financial future.
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