3 Basic Investing Mistakes People Make
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Investing your money helps you grow your wealth throughout your life and even after your death. You can think of investments as supercharged savings accounts, helping you tie your money into assets that will appreciate much faster than the terrible interest rates on most savings accounts.
Needless to say, there are many things people know and don’t know about investing. Common and simple mistakes are made all the time, largely by beginners. If you are just starting your investment journey, these are the basic mistakes you need to avoid:
1. Investing in things you don’t know or understand
Don’t invest in something just because everyone else is doing it. You’ve heard people talk about forex or crypto, so you want to get a slice of the pie. That’s fine, but only if you understand what you’re investing in. Do you know the market? Do you get what it means to invest in this asset? If you’re unsure, don’t invest! Learn about the investment so you have more confidence and knowledge, preventing big mistakes and loss of money in the long run
2. Becoming too attached to an investment
What’s the purpose of investing?
You want to make money from the asset you own. This means that, at some point, you will may need to sell it.
Problems happen when people become too emotionally attached to an investment. This typically happens in the stock market or real estate.
With stocks, people pick a company and get too attached to it, not wanting to sell their shares at the right time.
With real estate, you buy a property and become so emotionally involved in it that you delay selling it or you overinvest in the refurbishment of it or you make some common mistakes when buying a home. In either case, situations may arise where selling the asset helps you get the most money from it. By avoiding it, you could end up making a loss.
3. Forgetting tax
As with pretty much all things in life, there are taxes on investments.
So many new investors aren’t aware of this and it can lead to you making less money than you thought. Typically, most investments fall under something called Capital Gains Tax. The precise wording can be different depending on where you live, but it’s a tax that’s taken from your capital gains - in other words, the profit you make when selling assets.
The big mistake is that beginner investors look at certain investments and assume there’s no tax. For instance, there technically isn’t a crypto tax, but your crypto investments are taxed under Capital Gains Tax if you sell them for profit.
Always take this into account when selling as it helps you realize how much you will actually earn when you sell.
It could help you realize that holding onto your assets for a bit longer is a smarter idea because you can earn more of a profit with tax taken off.
By all means, there are other investing mistakes people make all the time. Still, these three are the most basic and common ones for beginners. Always ensure you understand the investments, don’t let your emotions guide you, and keep tax in mind to see how much you will actually make when selling.
What are some investment mistakes you think investors make?
Share your thoughts in the comments section below.
