When you decide to invest, you want to make sure you’re putting your hard-earned money in the best possible place. New and experienced investors who are not familiar with the pitfalls of investing may make mistakes that put their financial security at risk.
Once you know which mistakes to watch out for, however, you can avoid making them and stay financially secure. GOBankingRates spoke to Jay Avigdor, president and CEO of Velocity Capital Group, to learn more about common investing mistakes made by investors. Avoid making these six mistakes when setting investing goals.
Lack of Specific Goals
What are your investment goals? Do you have an investment plan? Which strategies will you use?
If you don’t know the answers to these questions or have only vague goals in mind, it’s time to return to the drawing board to establish clear goals. Avigdor said your investing goals should be specific and measurable. This will allow you to devise an effective investment strategy and track progress.
Overlooking the Time Horizon
Do not overlook the time horizon for your investment goals. The time horizon, Avigdor said, is the period you plan to hold an investment before needing the funds. This influences the investments you select.
Avigdor uses the example of someone saving for a short-term goal, like a down payment on a house in five years. They will likely want to choose less risky investments compared to someone saving for a long-term goal, such as retirement.
Ignoring Risk Tolerance
While there is a bit of risk involved in investing, it should not exceed your own risk tolerance levels.
“Many people fail to consider their risk tolerance, or their capacity to endure losses in their investments,” said Avigdor. “If you take on more risk than you’re comfortable with, you might panic and sell when the market drops, which can solidify your losses and disrupt your investment plan.”
Setting Unrealistic Expectations
Do not make the mistake of expecting only high returns. Doing so leaves investors disappointed and is even considered to be potentially risky investment behavior. Instead, Avigdor recommends setting realistic expectations for investment returns.
Many investors will ignore or forget about inflation and the impact it has on their investment goals. Avigdor said it’s vital to aim for returns that exceed inflation, as inflation can diminish the purchasing power of your savings over time.
Not Reviewing and Adjusting Investing Goals
Your investing goals should not be something you set and forget. Avigdor recommends reviewing these goals and adjusting them over time. Adjustments can be made based on changes in your circumstances, financial situation and the economic environment.
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