investment tips

Investment tips and mistakes to avoid

Investment is quite a buzz word in today’s society and especially in the financial sector.While investing is a very intelligent and exciting step to take, not many prospective investors are equipped with the right knowledge which can assist them to avoid pitfalls associated with investing. Below are a few tips which will assist would be investors:

Don’t invest without a plan – Good investment takes having a methodical and well written investment plan. Never invest on rumours, hot tips, stories, conjecture, predictions or an expectation the market will go up. None of these approaches qualifies as a plan despite their widespread use and popular appeal.

Invest in your financial education – Investing is both an art and a science. The art factor comes in because human beings are emotional beings whose decisions are quite often affected by values, moods, greed, fear etc. Investing is also scientific because it includes provable scientific principles like diversification, asset allocation, valuation, probability etc. It is therefore important to develop financial intelligence skills and knowledge so that you can strike a balance between the art and science of investing.

Always diversify – It is important to diversify investments but this must be done in such a way that new assets added have a different risk profile. The goal when diversifying should be to add independent and sometimes opposing sources of return. This can lower portfolio risk and increase overall return.

Don’t pick stocks but focus on asset allocation – An investor must avoid spending too much time on decisions which make little difference in overall performance. Instead spend your limited time and resources determining your correct allocation to asset classes and strategies.

Match investment style with personal goals – In investing, one size does not fit all. One therefore must find a path that will honor personal goals, values and risk tolerances so that there is fulfilment in achieving financial success. The journey to financial freedom is about discovering what size will uniquely fit you.

Beware of low liquidity – A liquid investment is something that can readily be converted into cash and an illiquid investment is something with barriers that keep it from being converted to cash. An investor should never make a mistake of accepting low liquidity unless the potential reward is so great as to merit the additional risk.

The above tips should surely go a long way in making the difference between wealth and poverty through investment decisions.

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