Ali Dino

Investing can be a fantastic way to grow your wealth, but it’s important to avoid common mistakes that can jeopardize your financial goals. Here are five investment mistakes you should avoid:

Failing to Diversify your Portfolio

One of the biggest flaws investors make is not diversifying their portfolios. This means investing in various asset classes, such as bonds, stocks, real estate, and cash. By diversifying your whole portfolio, you can spread the risk and increase the chances of making a profit. Online stock trading platforms make it easy to diversify your portfolio, as you can buy and sell various assets with just a few clicks.

Not having a Clear Investment Strategy

Before you start investing, it’s important to have a clear investment strategy in place. This means setting specific financial goals, determining your risk tolerance, and deciding on the investments that align with your goals and risk tolerance. For example, your financial goals include saving for retirement, buying a home, or funding your children’s education.

On the other hand, your risk tolerance refers to your willingness to take on risk in pursuit of potential returns. However, it’s important to be honest about your risk tolerance, as taking on too much risk can lead to significant losses.

Once you clearly understand your financial goals and risk tolerance, you can start determining the types of investments that are right for you. For example, this might include a mix of stocks, bonds, real estate, and cash.

Chasing Returns

It’s natural to want to invest in assets that have performed well in the past, but it’s important to remember that past performance is not indicative of future results. Chasing returns can lead to impulsive investment decisions and increase your risk of losing money. Instead of chasing returns, focus on building a diversified portfolio and sticking to your investment strategy.

One way to avoid chasing returns is to invest for the long term. Holding onto your investments for an extended period can ride out market fluctuations and increase your chances of making a profit. It’s also important to be disciplined and avoid knee-jerk reactions to short-term market movements.

Investing Too Much in your Employer’s Stock

It’s understandable to want to invest in the company you work for, but it’s important not to have too much of your portfolio concentrated in your employer’s stock. If the company faces financial challenges or the industry experiences a downturn, your entire portfolio could be negatively impacted. Online stock trading platforms allow you to easily diversify your portfolio and minimize the risk of having too much of your wealth tied to a single company.

Not Keeping an Eye on your Investments

Investing is not a passive activity – it requires ongoing monitoring and management. This means staying up-to-date on your investments, reviewing your portfolio regularly, and making adjustments as needed. By keeping an eye on your investments, you can ensure that your portfolio is aligned with your investment strategy and financial goals.

According to SoFi experts, “A secure platform ensures that your holdings are safe against fraud and theft.”

Investing can be a great way to grow your wealth, but it’s essential to avoid common mistakes that can jeopardize your financial goals. These include failing to diversify your portfolio, not having a clear investment strategy, chasing returns, investing too much in your employer’s stock, and not keeping an eye on your investments. By avoiding these mistakes and using online stock trading platforms, you can increase your chances of achieving your financial objectives.

When you get started as a financial market trader, it’s advised that you focus your attention on a single market and select-few assets within this space.

While this is sound guidance (particularly when entering diverse marketplaces such as foreign exchange), it also goes against the underlying importance of diversification within any successful investment portfolio.

But what exactly is diversification, and how can you look to successfully diversify your financial interests over time?

What is Diversification and Why is it Important?

The term ‘diversification’ is a relatively simple and self-explanatory one, which refers to a basic management strategy that blends different investments and asset classes within a single portfolio.

Utilised by fund managers and individual investors alike, it’s underpinned by the idea that a broad and carefully structured variety of investments will yield a noticeably higher return, while simultaneously minimising the risk and exposure associated with individual marketplaces.

Minimising exposure to a single stock, market or investment option is central to the appeal of diversification, as this can pose the biggest threat to your capital holdings over time.

This is because it fundamentally minimises the impact of a bad trade or outcome, especially when used in conjunction with stop loss measures available through platforms such as the MetaTrader 4 provided by Oanda.

Sure, this can also impact negatively on returns in some instances, the use of insight and data can ensure that it’s more likely to cut risk and enable you to cope in innately volatile markets.

So, although diversification does require you to trade profitability against risk in most instances, it ultimately optimises the risk-reward balance associated with your portfolio as it continues to evolve over time.

How to Successfully Diversify Your Investment Portfolio

As we’ve already touched upon, you’re best served by investing in a minimal number of stocks and markets when starting out.

However, you can still look to begin the process of diversification naturally as a new investor, before continuing to scale your efforts in line with profit and experience over time.

An excellent way to achieve this is to invest in derivative assets such as exchange traded funds (ETFs) or index funds, which effectively act as baskets of different stocks and instantly diversify your portfolio.

You can trade specific stock indexes through ETFs, for example, affording you access to specific groupings of assets that are categorised by factors such as industry and their country of origin (think of the Nasdaq 100 and Germany’s DAX30, for example).

When branching out, you should also target investments with variable risks and rates of return, with a view to ensuring that your portfolio is ideally balanced at any given time.

The key is to balance your risk-reward proposition in line with your outlook, while focusing slightly more on rates or return as a younger investor who can capitalise directly on compound returns.