With student debts and big purchase goals on the minds of young investors, getting into the investing world can be overwhelming. With a little research and the expertise of your advisor, you can avoid these 9 mistakes every first time investor makes.
1. Waiting too long
Many people’s biggest financial regret is not investing sooner. You don’t need a lot of money to get started - there is no minimum investment required with Invisor. The best time to invest is now, not when you think the market is going up. Trying to time the market can be dangerous and cause you to sell low and buy high when your emotions kick-in. If you don’t invest, you’re guaranteed to miss out on returns. If you do invest, you may see both ups and downs. But, if you’re thinking long-term, you’ll see a return on your investment over time and can cash out when you’re comfortable that you have reached your goal. Trying to time the market is not a good idea, especially when the market is volatile. The same applies to your retirement savings plan (RSP). You’re never too young to start planning for retirement. It’s RSP season and now is the time to contribute to your savings plan!
2. Rushing in
If you have committed to investing for the first time - great! Spend some time researching and developing a plan before you get started. What goal are you saving for? How much time do you have to reach your goal? What are you investing in and how does that fit your plan? Are you using an advisor? What are the fees? These are just some of the questions to ask yourself. Increase the amount you save slowly and methodically - perhaps use a percentage of your earnings as a target, so you are saving more as you earn more. You don’t have to invest all at once. Pre-authorized contributions are a great way to save and invest regularly.
3. Focusing on the short-term
Investing is not a get-rich-quick solution, it requires patience and goal-setting for long-term growth. Manage your expectations and understand that sometimes it takes years before you see a meaningful growth in your investments. Ignore short-term market fluctuations - short term trends are not good indicators of what’s to come. Short-sightedness can cause worry and in turn, cause you to sell out too quick.
4. Not having a plan
Your investing style will depend on your goals. If you’re planning for retirement, the market fluctuations of the next few years will not impact your funds. If you’re investing for your children’s education, then you may be looking at a shorter-term investment. It’s important to have clear objectives and a personal investment plan aligned with your goals so you’re not going in blind. Having a well-defined investment plan ensures that your emotions don’t get in the way and cause you to stray away from your goals - whether that’s 5 years, 15 years, or 30 years away.
5. Listening to opinions
When it comes to investing, everyone has advice, from family and friends to financial media. Do your own research. Look at long term trends and reputable articles. Don’t just buy into the hottest performing investments because they are the next big thing - those types of trends may be the riskiest and you may let your emotions convince you to buy at the wrong time. Recent performance is not an indicator of what is lucrative in the long run. Data speaks, while following the hottest trends can cause you to jump in late or invest in the wrong one. Don’t just blindly take recommendations based on speculation. There is no secret formula to successful investing. Everyone’s goals, risk tolerance, and financial positions are different.
6. Not investing in your Employee Savings Plan (ESP)
Take advantage of your employment-related savings plan if it’s available. Just like you wouldn’t turn down free money, it’s not wise to decline your company’s ESP. An ESP is a plan where employees opt in to contribute a portion of their pre-tax income into an employer-provided investment plan. In many cases, your employer will even match your contributions up to a certain level. These consistent contributions are a great way to contribute to your retirement savings.
7. Not evaluating your risk tolerance
It’s important to understand the risks before you begin investing. Lower risk portfolios return a lower rate of return. A higher risk portfolio means there is an opportunity to gain more, but also the possibility of longer-term losses. But, if you’re not comfortable with the possibility of increases and decreases of 20%, for example, then you may be a more conservative investor than an aggressive one. Our online Questionnaire can help you determine your risk tolerance.
8. Not diversifying your investments
Don’t put all your eggs in one basket. The key to investing is diversification. Invest in different asset classes and even diversify within those asset classes. Choose an asset allocation that matches your objectives. This way, if one investment isn’t moving the way you want it to, you’ll have others to fall back on. Consult an investment professional if you need help with making the right choices.
9. Investing without an emergency cash reserve
Start investing for the long term once you have accumulated enough funds as emergency cash reserve. A general rule of thumb is to have sufficient cash to cover 3 to 6 months of expenses. Invest with your own money - borrowing money to invest is generally not a good approach and must be done selectively, preferably with guidance from a financial professional.
It’s easy to make mistakes investing, especially if you are doing it for the first time. These tips can help you become a more savvy investor. Our financial advisors are here to guide you through the process and manage your investments for you.
Invisor offers Canadian investors personalized investment management solutions at a fraction of the cost of traditional advisor models, without requiring any minimum investment amounts. Get started now to tell us a little about yourself and your goals, and we’ll find an investment solution just right for you.
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