This article will talk about three reasons that can make you lose your investment. We all agree that it is vital to have multiple sources of income. Hence, investment is crucial. The investment will also help us to have a comfortable life and achieve our financial goals. Therefore, we should make the right investment whereby these three things are essential to avoid.
1. Investing without a plan
Investing without proper planning is such a bad idea. It will be more difficult to achieve your financial goals. Therefore, investment planning is essential. It will provide a direction and meaning for your financial decision. As you set financial goals and objectives, a plan will help you choose the right investments. The easy first step to preparing your investing plan is by reviewing your financial position constantly. This step will help you evaluate the investment and improve your following financial decisions.
2. Not having an exit strategy
In a stock investing context, an exit strategy aims to realize a profit or mitigate potential investment losses. It is important whether you are a passive investor or an active trader. Lack of exit strategy can cause your emotions and loss aversion to get in the way of making good decisions. Conversely, having it can prevent you from such issues. It is essential to manage your portfolio as it will help you gain your profits and stop your losses. These questions will help you to plan exit strategies:
- How long do you plan to be in the investment?
- What measures will you use to assess the performance?
- How will you define a situation when it’s time to get out?
Likewise, you can also decide to earn a target return and a maximum loss from the investment in the beginning. For example, you set a target return of 10% on the 200 shares you bought. Once the investment reaches that 10%, you may decide to exit by selling those shares at a profit. Furthermore, let’s say you set a maximum loss at 5%. If your stocks hit that percentage, you may sell them to avoid further losses.
3. FOMO Investing
Fear of missing out, or FOMO, can cause investors to make bad investment decisions. Some behavioural experts said that FOMO could lead investors to make riskier choices than they otherwise might. In this case, watching other people make a lot of money on a particular investment may make you feel compelled to join in. Accordingly, it can give a baseless sense of confidence about your investment choice that leads you to ignore advice that you usually take. It’s very important to avoid FOMO investing as much as you can.
In this regard, the best lesson we can draw is the importance of doing your research before deciding where to invest your money. It should be done instead of relying on the excitement of others. Hoarding behavior can be one of the reasons you lose your investment. These words by US Securities and Exchange Commission can be a reminder for us, “it is never a good idea to make an investment decision just because someone famous says a product or service is a good investment.”
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