One of the most important secrets to building wealth is to start as early in life as possible. Many young adults today refrain from taking time to fully understand how to make wise investments. Most often, this is because of a desire to only live in the present, and not the future.
Investing young does not mean you will have to forgo your lifestyle. Investing at an early age is about adopting a long-term focus and making consistent investments over a long period of time. In this article, we touch on two of the biggest mistakes young investors make.
Making unrealistic goals
One advantage of investing at a young age is the ability to make calculated risks. However, that does not mean you should make unrealistic expectations. It is unreasonable to expect every investment to deliver a 50% return! Some stocks for example, can do well when the market and economy is strong, but these stocks are also very volatile and have the ability to experience huge price swings. In pursuing manifold returns, young people also dabble in penny stocks and end up wasting their hard-earned money. A word of advice: if an investment sounds too good to be true, then it probably is.
Letting emotions drive investments
Another mistake many young investors make is letting their emotions come in the way of their investments. For example, many people believe that just because something has done well in the past, like a high-performing stock, that it will continue to do so in the future. However, research shows that buying an investment at a high price, often because of its past success, is quite likely to be an impediment to profiting from that investment. Likewise, young people often sell their investments, or refrain from making further investment contributions when the economy is in a slump. This behaviour is emotionally based and actually locks in your losses, taking you nowhere.