Are you thinking about investing in the stock market?
Only about 55% of Americans own stocks. Additionally, only a small percentage of Americans are directly invested in individual stocks (14% according to the Federal Reserve), whereas the majority of people’s investments lie in retirement accounts such as 401(k)s.
Many people avoid investing in the stock market because they’re afraid of making stock market investing errors. If you don’t know what you’re doing, you could end up losing all of your hard-earned money.
What are the stock market investing errors you need to avoid? Read on to find out.
Investing Based On Emotion
We all have companies that we love and would love to see do well. However, you can’t expect to win the stock market game by choosing to only invest in your favorite brands.
Instead of choosing the companies that you want to do well, you need to choose the companies that you think will do well. This is why studying the market is so important, as it’ll help you think with your head instead of your heart.
Not Diversifying Enough
One piece of advice you’ll hear time and time again from seasoned investors is to diversify your portfolio. A well-diversified portfolio means owning stocks in a variety of companies and industries.
It’s also a good idea to own different types of stocks. The main types of stocks include:
- Growth stocks
- Value stocks
- Income stocks
- Common stocks
- Preferred stocks
- Small, mid, or large-cap stocks
- Penny stocks
- Blue-chip stocks
- Defensive stocks
- Cyclical stocks
We recommend doing research into each of these types of stocks to figure out the best way to invest for your needs.
Chasing Short-Term Wins
Investing in the stock market is not a “get rich quick” scheme. Stocks are not lottery tickets. Building wealth through the stock market often takes years if not decades.
And, you may not see any big gains until you’ve invested a significant amount of money. When investing in the stock market, you need to come in with the mentality that you’re trying to make money in the long run.
That being said, there are people who have gotten rich off of a handful of stocks. However, it takes an incredible amount of luck and skill to be one of these people, so don’t bank on it.
Trying to Time the Market
Many investors make the mistake of trying to time the market. That is, they try to buy and sell stocks quickly based on whether they’re going up or down.
While this strategy makes sense in theory, it often doesn’t pan out in reality. This is because no one really knows which direction the stock market will go. You may think you’re buying a stock at its lowest point, only to find out it goes lower and lower.
Stock Market Investing Errors: Are You Ready to Invest?
Now that you understand these stock market investing errors, it’s time to get started with your investments! While investing in the stock market can be scary, if you’re patient and do your research, you could stand to make some big gains in the long run.
Check back in with us for more stock market investing tips!