Investing in the share market can be easy but doing it the right way is where the nuances lie. Knowing them will not only help you make the right decisions but will also prevent a detrimental blow to your wallet. The share market can be quite tricky, especially for beginners. Everything ranging from learning the technical vocabulary, tofinding the best investment accounts, virtually every facet of the share market requires research and due diligence. Before diving headfirst into investing, take some time to learn about the most common mistakes that beginners usually commit. Avoiding these mistakes is extremely important if you hope to understand the share market well.
1. Investing Where You Don’t Understand
Share market for beginners appears as a world of opportunities and rightly so. But how you are investing is also important to know. Investing in a company whose business models you barely understand can prove catastrophic to you. One way to avoid this is to understand the financial working of the company before you invest in it. The other and safer option would be to not invest all your money in the same company. Avoid stocks that are overvalued as these are typically high-risk and could get you “enroned“. Diversify your portfolio so that even if a company faces loss, you can recover from elsewhere.
2. Caught In Unrealistic Goals
It is important to make goals but setting unrealistic expectations is only going to disappoint you. Share market for beginners stands as an illusion that investing in the share market can give them instant returns. Remember that your shares need time to grow. So investment should only be made when you are willing to provide your stocks a good time to grow.
3. Unprepared Investments
Investing when the time is not correct can come as a blow. If you are already in debt and still are opting for investment then the dual expenditure can destabilize your finances. Investment should only be done when you are assured of surplus income or savings. Otherwise, it should be avoided.
4. Frequent Trading
Share market for beginners is a platform where they can easily invest in one company or another. But the way beginners use this facility can backfire. What they usually do is that they first invest in a company which seems to perform well but as soon as some other company comes up with the promise of a better return, they immediately sell their existing shares and buy the new ones. This not only makes you pay more taxes but also does not provide your shares the requisite time to grow.
If you are investing somewhere you should trust your decision and give your shares the time to nurture.
5. Over Diversification
If investing in one company is imprudent than having your investment split in 50 different stocks is also not practical. If any one of these stocks earns a massive profit, your share in it will be marginal and your overall portfolio will hardly be improved. There is no fixed number of stocks to invest in. Nevertheless, you should manage it in a way which ensures you are neither risking your portfolio by investing in a handful of stocks nor making it almost ineffective by investing in too many.
6. Penny Stocks
Knowledge of the share market for beginners who do not understand much of investment differs significantly from seasoned investors in the specific case of penny stocks. Penny stocks can easily be bought at a very low price. Thus they lure many beginners into buying them more as you can easily buy a large chunk of them at a marginal cost. But this is the trap to be avoided.
Penny stocks are priced low because their chances of growth are also quite less and they rather belong to unprofitable companies. With them, you can wait for years and yet nothing much may come out of it.
This is not to say that penny stocks cannot make profits. It is just their chances of facing a loss is relatively higher than making a profit and that’s why they are sold cheap.
7. Timing The Market
Many beginners try to wait out the buying period of a share. They wait expecting that the prices will fall down further. But no one knows what the right time is in the share market. The fluctuations it undergoes is highly volatile. There are just as many chances of your preferred shares’ price rising rather than falling.
Shares do not follow the simple maths of rising gradually in price and can even fall steeply.
So if you are planning to buy shares and have the funds to purchase it, just go for it without being reliant on the fortune’s wheel which can turn either way.
8. Not Learning
There is no such thing as complete knowledge. Share market keeps bringing new scenarios to light. From the different approaches and strategies to assessing the market risks there always remains room for new things to learn. Seasoned investors know this quite well. If you are planning to invest in the share market do not ever stop learning or keeping track of things. Better knowledge can take you far ahead in the volatile world of the share market.
If these mistakes are avoided, the share market for beginners can be just as promising and rewarding as it is for many expert investors.
