These are the most common investment mistakes that people make nowadays.
1) Taking flawed investing advice from friends and relatives.
Taking investment advice from friends is like oiling the pan that will fry you. Not all your friends are investment experts. Before spending big on some investment, get a qualified financial advisor to have a good look at the possible returns and compare that with your goals. There is immense pressure to invest in a business that friends also invest in, but it is best always to remember that friends can over-quote the kind of earnings they get from a business venture. Resist the temptation of investing in a very unfamiliar business that is being fronted by a friend over a cocktail.
2) Overbuying depreciating assets.
Spending heavily on a depreciating asset is one of the quickest ways to end bankrupt. Just like a car starts depreciating once it has driven off the showroom floor, a private yacht or plane also undergoes depreciation as the clock ticks. Even the savviest people will lease boats if they have to do it for a short while.
3) Making uninformed investments in technology.
Technology has always been a time bomb. Technology changes so fast and as much as we get dazzled by this sector, it still needs a sound understanding of the fundamental operations of the particular stocks that you buy. Some technology companies are very profitable at the moment, but they keep on being replaced by a newer improvement sooner or later. Even when you choose to invest in an individual stock, it is of paramount importance to do the proper research about the company.
Technology is a sector that changes very quickly. Big companies like Kodak folded because they did not reinvent with the times. Some figures invest in dangerous technology stocks because the company has a prestigious product line but the same companies have a bleak future. Give more weight to the possibility of earning more profits in future compared to the profits already made over the history of the enterprise. How much research and testing do you see the company doing? Drop the tech stocks that do not have much innovation going on because they are not likely to repay more than 50% of your initial investment.
4) Buying overvalued real estate.
Wealthy people naturally make serious money at a once and are under immense pressure to own property that reflects the kind of social status they command. It is for the same reason that the very wealthy will end up buying overvalued real estate projects that may not bring the kind of returns that they expect to get. It is also important to remember that at this stage, most of the homes that they buy are likely to come from other wealthy people. Successful basketball players are notoriously guilty of purchasing property that has been fronted to them by another rich athlete.
Overloading a home with more than enough amenities does not accurately translate to more value. It, therefore, beats sense to buy a house with five swimming pools or multiple tennis courts other than for the prestige that comes with saying you own a home with five swimming pools. The market for extreme luxury is minuscule, and at the same time, people who buy such luxury usually have very specific customization demands. It is very common to find figures wanting to dump their assets back into the market for prices that are less that they got paid.
5) Investing in restaurants that do not make money.
Many restaurants are not doing so well. Some of the purchases have been as a result of poor self-control in spending. Some amusing incidents include celebrities who dined at restaurants and out of the blue requested to buy up the place. Even more worrying is that they float figures that are not a realistic reflection of the real value of the restaurant. Avoid purchasing restaurants or clubbing spots just for the name.
6) Panic-selling when the stock prices fall.
Some figures who invest in stocks without much familiarity about how the stock exchange trends are likely to panic and sell everything once the share prices drop slightly. The financial downturn of 2007 – 2008, for example, got many people selling off their whole portfolio in panic. The smart people chose to cash in on the heavily discounted prices and are now enjoying good returns. Stocks are expected to rise and fall in the short term, but they have a general upper trend over the years, this is to be expected more often if the company has strong fundamentals. Do you take the time to read the company’s prospectus before purchasing a stock? Finance experts will recommend looking at the history of profit-making and keep those stocks that seem to remain afloat even when the economy is considered to be in poor form.
7) Overestimating future income streams.
Most people fail to plan their financial futures well enough and end up frustrated if there is less money coming in after a certain age. You need to make plans to have more sources of income aside from your primary business. How about investing in some mutual funds and cashing in on regular payments or investing in ventures that have prosperous futures even before they hit their prime. Having an investment advisor will help to plan for your future through the use of a sound investment strategy.
DISCLAIMER: This article expresses my own ideas and opinions. Any information I have shared are from sources that I believe to be reliable and accurate. I did not receive any financial compensation in writing this post, nor do I own any shares in any company I’ve mentioned. I encourage any reader to do their own diligent research first before making any investment decisions.
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