Thursday, 25 April 2013

Top 20 Pitfalls to be avoid in Share Investment / Trading

Following are the top 20 most common investing mistakes which you should avoid:

1 - Putting all your money in one type of investment. If you have all your money tied up in a single investment and something goes wrong, you will lose all your money.

2 - Another mistake investors make is purchasing stocks before their ex-dividend date and then selling them after the dividend is received. In reality, the company's share price would decline on the ex-dividend date by about the same amount of the dividend, and this has absolutely no value for you. But, the dividends received will create a tax liability for you.

3 - Focusing on past performance. Investors usually think that the past performance is a good indicator of future performance but ignoring the fact that best performers can also turn into the losers over a period of time. Past performance is no guarantee of future returns.

4 - Putting too much focus on Number-Based Analysis. Numbers can be used to identify strengths and weaknesses, or to compare various investment alternatives, but numbers alone are not enough in determining an appropriate investing strategy.

5 - One of the biggest investing mistakes that many people make is investing before they are financially ready. To be a successful trader, you should clear up your debts first before using those funds for investment purpose.

6 - Being greedy. This is the most common mistake associated with trading stocks. Don’t be in a hurry to make quick money.

7 - Investing without a plan. It is very important to have a solid plan so that you can be aware of the risks and returns associated with your investment.

8 - Not setting clear goals. A successful investor should set clear and achievable goals with timelines.

9 - Not following the financial plan. Some investors simply invest money on other areas without following the initial plan and this may yield higher risks of losing the money.

10 - Too much diversification. Though portfolio diversification can reduce investment risk, spreading your investment over too many companies will also lead to some problems, you will have too many to properly manage.

11 - One of the most common mistakes that beginners make is forgetting about expenses or not budgeting enough for certain costs.

12 - No patience for potential investment growth. Many investors make the big mistakes of selling a valuable stock too quickly.

13 - Another mistake is to have too much confidence in the ability of your brokers.

14 - Following rumours without doing your own research and analysis.

15 - Timing the market is also one of the common mistakes that many investors make.

16 - Invest in things that you don't understand.

17 - Letting your emotions rule your decisions.

18 - Failing to learn from mistakes.

19 - Focusing only on return.

20 - Being overconfident.
Source: finance learners