Are you familiar with “recency bias?” If you’ve been basing your decisions in life on current events, you may already be practicing it. “Recency bias” dictates how recent events carry more weight when you assess the odds of something occurring in the future. And this is one of the more common investor mistakes.
Every bad investment can be traced to faulty decisions. Instead of using available resources, you may act on impulse or rely heavily on your beliefs. Whether you’re new to the world of investment or have been dabbling in it for some time with little success, you need a systematic approach. One that allows you to avoid common pitfalls and maximize your returns.
Set Your Goals
Is your investment for a retirement fund out of the country? Is it for a big event you’re anticipating? Are you looking to set aside funding for your kid’s future? Determine your goals first before looking at where you want to commit your money. A goal defines the kind of returns you want to achieve as well as your capacity for risks.
Every investment vehicle will carry a degree of risk; you just have to pick one that meets your comfort level. If you’re willing to lose some to make more, you can turn to securities investment. But if you’re not and time isn’t a factor, look into assets with less risk.
Although you can start off on your own, it may be better to have a professional’s opinion when formulating your financial plan as an investor.
Get a financial advisor
Every investment is daunting, especially when you choose to go with multiple assets for your portfolio. A financial advisor can guide you in the right direction. You’ll get an objective opinion about your investment goals and may even receive recommendation on an investment without the risk of emotion.
You may, for example, be worried about the market’s free fall in light of the pandemic, so you want to pull out. Fear is OK, but not when you’re letting it drive your investment decision. A professional financial advisor may offer an objective analysis of the market, allowing you to make an informed decision.
But don’t just rely on a professional for your investments; educate yourself as well.
Learn about the assets or markets you want to invest in
Investment education is necessary. You can’t make those sound decisions if you’re not able to understand how an asset performs or how the market moves. For example, if you’ve decided to put your money in gold or silver bullion coins, you need to know their melt value to determine what you might get for them when you sell them. You might also want to get an independent appraisal of the bullion coins before buying them to get an accurate value.
Finally, don’t get distracted. Whether it be the big noise on Wall Street about some stock or the financial doomsday scenarios on TV, focus on your long-term goals. Practice, patience, and you will be rewarded.
The right investments require careful thought and weighing the information that’s available to you. It’s not easy, but it will be worth it once you see how your money’s working for your future.
