Greatest Investing Mistakes
What is the greatest mistake that an investor can make? Buy the wrong stock? Buy low and sell high? Choose the wrong insurer? Buy the prime property before the bubble burst?
While all the above are costly mistakes that can cost you a few sleepless nights, they are not the greatest mistake.
The greatest mistake that you can ever make is this: YOU DO NOT KNOW YOURSELF.
You have not taken the time to know yourself and your investment needs. That is the greatest mistake. So stop blaming the stock market, the investment guru, the real estate agent or whoever/whatever you have been bitching about.
Start to learn about yourself and your investment needs. Answer these questions:
a. Which stages in life are you at? Are you a young person at accumulation stage? Are you a middle age person in consolidation stage? Are you a retiree at spending/gifting stage?
b. What is your risk tolerance? Can you take high risk and able to sleep when 80% or more of your capital is lost? Do you prefer risk-free investment?
c. What is your liquidity needs? Do you need cash in the coming months? If so, how much cash you need? Do you need to liquidate your asset for the immediate needs?
d. What is your time horizon for investment? Can you afford to lock in your money for the next 30 years? Next 10 years? Next 5 years?
e. Are you in high or low tax bracket?
f. What is your investment preference? Do you prefer investing in stock market where you can buy and sell easily but is very volatile? Or do you prefer to invest in real estate? Or do you prefer the stability of government bond?
Take the time to understand yourself and your investment needs. This is not something that you can do within an hour. Know what you want before you start sourcing for investment opportunities.
Once you do so, stick to your investment plan. Stick to your preferred asset class. Beware of the second greatest investing mistake. The second greatest investing mistake is to let others persuade you to divert from your plan.
We often heard of investors who sell their risk-free government bonds and divert the money to high risk investment asset. The lure of a high profit, easy money making opportunity makes them divert from their investment plan. DON’T ever let this happen to you. Don’t be greedy, stick to your investment plan. May you have the peace of mind to sleep soundly every night.