Finances – Beginners Mistakes to Avoid in Financial Investments

Joining an investment services company can be a worthwhile idea if you want to make any financial investment. Although some investments such as buying stocks and shares do not guarantee returns, an investment services company will offer advice on which companies to invest in to increase your chances of earning from your investment. Not only that, investment services companies also offer advice on how to make wise financial investments while avoiding the mistakes that investors commonly make. Here are some common mistakes to avoid when making a financial investment:
Not diversifying investments. Financial markets can be crazy, but you still have to contend with what they have to offer. Opting to stay out when there is turmoil in the market is rather pessimistic because you never know the gains that can arise soon after the downturn. The best way to go is to stay in the market by diversifying your investment options. There could be a crisis in the real estate sector in a certain year but at the same time a particular company’s shares could be doing well. If you invested in both areas, you could be witnessing a slowdown in one area but at the same time be reaping significantly from the other.

Failing to have an investment policy statement. An investment policy statement helps you to express your goals in writing, identify levels of risk tolerance and to allocate your resources in various investments. With an investment policy statement, you can identify the age at which you intend to retire, decide on the sum of money you want to save for your future education, and set the priorities for your expenses. In short, an investment policy statement guides you as you make your different investment options.

Ignoring inflation. Inflation has a significant impact on financial investments. If you notice that your expenses are slowly outpacing your earnings in any investments, it is a time to realize that you are falling behind. During times of inflation, it is worthwhile to invest in services that can guarantee payback, such as bonds, which pay a premium in accordance with the government’s cost of living index.

Attempting to time the market. The other costly mistake in the financial investment sector is making an attempt to time the market. That is, you can make an assumption that a certain company’s shares usually perform well at a certain time of the year and hope that you can buy the shares and sell them during that ‘profitable’ season of the year. This is not usually the case, as different investments perform differently at different times. An alternative to timing the market could be to hedge risk. It is important to keep in mind the fact that the market is volatile and the best way to go is to take stock of the risk involved in any investment.