4 Things a Newbie Investor Shouldn’t Do

By on February 26, 2014

newbie investorI’ve recently becsme interested in investing and the global markets in the past year, so I still consider myself a “newbie” investor.

However, I’m always surprised at those who jump into the game too quickly, as I personally am a very cautious, conservative person when it comes to investing my hard earned cash.

So for anyone who is interested in learning more about investing, here are some things you should probably avoid if you are a newbie:

1. Picking Trendy Stocks

If you flip through the business news, you’ll hear the anchors talking about this stock or that stock. You often hear phrases like, “This company is hot!” and other types of messages that are intended to push viewers to buy shares of a certain company.

While there is often some truth to what these financial experts are saying, it’s extremely important to do your own research. Never pick a stock just because it’s trendy. After all, when you go with the crowd, prices rise.

It’s much better to take your time, track the market, and see how the companies you like are doing.

2. Buying During a Surge

Over the past few months, the market has surged. Some economists are warning that it’s creating a bubble that’s about to burst while others are saying it’s just a sign that the economy is improving.

Although you might be anxious to invest right this second, it’s better to wait until the market slopes down slightly. Just like you wouldn’t want to buy a house at the height of the market, you don’t want to invest at the height either. Everyone will have different opinions on this, but in my opinion, when the markets are going up, up, up, it can be hard to discern what is “real” from what is the bandwagon effect.

3. Investing with Friends & Family

I think it’s important to support friends and family in their endeavors, but one of the worst things you can do with your money is sink it into one of their brand new businesses or ideas. There are, of course, exceptions to every rule. For example, if I had an uncle or a cousin who had an exceptional history of entrepreneurship or business ownership, then I might invest in one of their new endeavors. However, if someone I know just had an idea or had no experience, I would graciously pass on the opportunity. Loaning money to family and friends and investing money in their ideas is always tricky, because if it doesn’t work out, it can hurt family relationships.

4. Timing the Market

A lot of newbie investors try to time the market or play the market by buying and selling stocks every day. However, anyone who is a newbie shouldn’t be a day trader until they are incredibly familiar with the way the market works. No one can perfectly time the market. If they could, we wouldn’t have so many disappointed investors, both novice and experienced. The only thing anyone can do is to educate themselves as best as possible and try to target safe, long-term investments that will net them profits over a long period of time.

Are you a newbie investor? Have you made any newbie mistakes?

About Catherine Alford

Catherine Alford is a personal finance writer who received a B.A. from The College of William and Mary and an M.A. from Virginia Tech. When she is not writing for other websites on all topics frugal and fabulous, she enjoys sharing her adventures on her blog, www.BudgetBlonde.com. Follow her on Twitter @BudgetBlonde or like Budget Blonde on Facebook.

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