How the Average Investor Loses Big
With all the new trends going on in the stock market (we’re looking at you, bitcoin), more and more people are investing each day. As of 2019, 53 percent of Americans are invested in stocks. In 1989, that number was only 32 percent.
While there are many factors that go into investing and understanding the stock market, there are certain rules of thumb that any investor should be aware of. The last thing you want to do is invest a good chunk of your savings only to have it swindled away with poor-performing investments. So, how does the average investor lose money? You’re about to find out.
Putting All Your Eggs in One Basket
We know, you’ve heard that saying at least a million times in your life. But it’s especially true when it comes to investing. Let’s say you invest in 3 different stocks in the same industry.
What if something big happens in that industry? A scandal, waning interest or a global event can drastically change the value of entire industries. Spread your wealth around to different industries that tend to be more stable.
Not Keeping Up With Trends and Current Events
As you know, the stock market can shift in an instant. Remember the Gamestop fiasco?
Since the stock market is unpredictable, it’s crucial to stay focused and disciplined. For example, Apple’s stock often shoots up after a product launch or keynote address. This is when many investors want to invest once they see a big jump in stock price. Unfortunately, they are now potentially buying high.
We always suggest that you ignore the noise of the big swings in the markets. In order to buy low and sell high, you need to leave your emotions at the door. The stock market is efficient and you don’t have any information that others don’t already have.
Investing With Your Emotions
Unfortunately, many investors lose money due to greed and fear. Maybe they want to latch on to the latest stock trend (i.e Dogecoin) or all their friends are investing in a particular stock. You don’t have to follow the trends.
For example, the dot com boom in the 1990s ended with many big companies going under. The reason? So many people were investing in these companies, while they lacked the financial stability that investors needed. Dot coms were all the rage back then, and investors couldn’t wait to get into the industry. But, it backfired.
Overall, investing in the stock market is a great way to prepare for the future. But, it isn’t always easy. These factors are just the tip of the iceberg. If you need any help building your retirement plan, feel free to reach out to one of our advisors.
Written By Matthew Delaney, Managing Partner at JDH Wealth