It is no secret that investing is one of the tested and proven ways to grow wealth. With five banks recently participating in the oversubscribed public offer, one could say Nigerians are beginning to wake up to that fact. As more people strive to become more investment savvy, learning lessons from both the best and worst advice out there is imperative to avoid unnecessary investment mistakes in your journey. 
Here are eleven (11) of the most common investing mistakes to watch out for when investing, If any of these mistakes sound familiar, it might be time for you to consult CSL Stockbrokers financial advisers.

 

Key Takeaways

• Successful investing begins with having a clear financial roadmap. Establish specific goals, such as “saving for retirement” or “buying a home”, to guide your decisions and avoid aimless strategies.
• Time is a crucial factor in investing. Allow your investments to grow by maintaining a long-term perspective and avoiding unrealistic expectations of quick returns.
• Whether driven by fear or greed, emotional reactions can derail your financial plan. Stick to your strategy and avoid letting market fluctuations tempt you into impulsive decisions.
• Understand your risk tolerance and align your investments accordingly. Additionally, regularly reviewing your portfolio ensures it continues to meet your financial objectives, helping you stay on track toward your long-term goals.

 

Common Investment Mistakes

• Not having clear financial/investment goals
• Not giving your investments time to grow
• Letting your emotions rule
• Chasing the trends
• Trying to time the market
• Not doing due diligence and skipping the research
• Buying high and selling low
• Taking too much, too little, or the wrong risk
• Not reviewing investments regularly
• Forgetting about inflation
• Investing money, you’ll need soon 

 

Not having clear financial/investment goals

Whether you’re aiming to save for retirement, buy a home, or cover your child’s university fees, there are various reasons why you’ll consider investing. A clear objective will help you determine how long you want to invest, select the most appropriate assets for your portfolio, and assess your risk tolerance. 
Financial goals also serve as a roadmap, ensuring your investments are aligned with the path to potentially reaching your primary goal.
The saying, “If you don’t know where you are heading, you will probably end up in the wrong destination,” applies to everything, including your investment. 
Everything, from your investment plan and strategies to your portfolio structure and specific stocks or bonds, can be tailored to align with your financial life goals. However, many investors get caught up in chasing the latest investment trends or prioritizing short-term gains rather than building a portfolio that will likely help them achieve their long-term objectives.

 

Not giving your investments time to grow

When it comes to investing, time is a significant factor. Ideally, you should keep your investments for as long as possible to maximize your returns. Over time, taking a slow and steady approach to growing your portfolio will lead to better results. Expecting your investments to do more than they’re designed for can lead to problems. It’s important to have realistic expectations about how long it will take for your portfolio to grow and deliver returns.

 

Letting your emotions rule

Reacting emotionally to market changes or expecting quick results can lead to impulsive decisions. Successful investing is usually a long-term process that tests your patience and staying objective can be challenging. On the other hand, you might get too attached to an investment or hold onto it for too long, hoping to recover a loss.
Investing can stir up strong emotions, which can affect your decision-making. Questions like whether to involve your spouse in financial planning or what should happen to your assets after you die can feel overwhelming. However, don’t let these big questions stop you. A good adviser can help you create a plan that works, no matter how you answer them.
It’s crucial to have reasonable expectations, remain realistic about investments, and know when and who to ask for advice.

 

Trying to time the market

In a perfect world scenario, investors would always buy stocks at their lowest price and sell them at their highest, ensuring maximum profits with zero regrets. Unfortunately, we do not live in a perfect world. You might think you can time the market better than most, and maybe you’re right. But think about the risks.
Timing the market is possible but tricky. For those without proper training, trying to predict the perfect time to buy or sell can lead to major mistakes.
An investor who missed the top 10 trading days on the Nigerian All Share Index (ASI) between 2010 and 2020 would have seen a significant drop in their annualized returns. During this period, the ASI had several volatile yet crucial trading days where large gains were realized. If an investor had stayed invested throughout, he would have benefited from the ASI’s overall growth. However, if they had tried to time the market and missed just those ten best-performing days, their returns would have been reduced by over 30%, based on historical performance trends Investing.com IJ Sciences, demonstrating that staying invested consistently often provides better long-term returns than trying to move in and out of the market in an attempt to time it.

 

Chasing the trends

Like the mistake of trying to time the market, it can be tempting to jump into investing in the latest top-performing stocks or follow the crowd without doing your own research. When you understand the background of an investment or have someone experienced to help you, you can better spot when assets are overpriced and likely to disappoint because everyone else is buying.
Being informed about your investments, recognizing trends, and having a long-term plan can help you navigate market ups and downs. Many investors make the mistake of chasing trendy stocks because of FOMO (Fear of missing out). It’s essential to do your own research before investing. Alternatively, you can invest in index funds to watch your portfolio steadily grow if you prefer a more hands-off approach. Using your brokerage account to buy diversified mutual funds or index funds can reduce your risk compared to buying individual stocks.

 

Not doing due diligence and skipping the research

You can find many databases to check if the company managing your investments is regulated and has the right training, experience, and ethical standards to earn your trust. Why not take the time to verify this? Ask for references and investigate their previous work on the investments they suggest. The best-case scenario is that you avoid falling for a scam like the Ponzi scheme. Every investor should consider this trade-off worthwhile.

 

Buying high and selling low

The basic rule of investing is to buy when prices are low and sell when they are high, yet many investors do the exact opposite. Instead of making logical decisions, many investors often act out of fear or greed, buying investments at high prices hoping for quick gains, rather than focusing on long-term financial goals. When investors prioritize short-term returns, they often get caught up in risky trends or invest in what worked recently. However, when an investment becomes widely popular, it becomes harder to determine its actual value.

 

Taking too much, too little, or the wrong risk

Investing will always involve some risk, but it’s about finding the right balance. If you take on too much risk, your investment performance may fluctuate considerably, making you uncomfortable. On the other hand, taking too little risk could result in too small returns to meet your financial goals. It’s important to understand how much risk you’re financially and emotionally prepared to handle and be aware of the risks involved in your investments. Always seek advice from a professional or an expert before taking on any level of investment risk. 

 

Not reviewing investments regularly

It’s crucial to regularly review your investments to ensure you’re still on track to meet your financial goals. Ideally, you should check your portfolio once or twice a year. However, reviewing it too often could give you a misleading sense of how your investments are doing, especially for assets like stocks that can change in value throughout the day.
Looking at your investments over a more extended period gives you a clearer picture of their overall performance and helps you decide if any changes need to be made.

 

Forgetting about inflation

Many investors focus on only the raw numbers (nominal returns) instead of the actual gains (real returns) after factoring in fees and inflation. Even when inflation isn’t high, the costs of some goods and services will still rise over time. What you can buy with your money matters more than the amount in naira or dollars. Focusing on the returns you get after adjusting for the cost of living is crucial.
When evaluating your returns, consider inflation—the rate at which prices for goods and services increase. For example, if you have N1,000 today and inflation is 10% over the next year, you would need N1,100 to buy the same things a year later. This means your original N1,000 has lost 10% of its purchasing power.
Similarly, if your investment returns are lower than inflation, the real value of your assets decreases over time. So, always aim to measure your returns in terms of what they can actually buy after accounting for inflation. 

 

Investing money, you’ll need soon

The biggest mistake investors make is jumping into the stock market without establishing a solid financial foundation. Before you start investing, you should feel confident in managing your spending. A key part of this is having an emergency cash reserve, so you don’t have to rely on your investments in case of unexpected expenses or specific purchases.
To know if you’re ready to invest, ensure you have enough savings for your short-term expenses and emergency funds. CSL Stockbrokers LTD will recommend that money needed within six months to one year should not be invested in stocks. Instead, keeping such funds in a savings account or money market is better.

 

Conclusion

Avoiding common investment mistakes is key to building a successful financial future. By setting clear goals, staying patient, managing your emotions, and balancing risk with regular reviews, you can make more informed decisions and increase the chances of achieving your long-term objectives. Investing is a journey and avoiding these pitfalls will help you navigate it confidently and disciplined. 
Ready to take the next step? Reach out to CSL Stockbrokers today and secure your financial future with confidence.

 

 

 

 

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