Published On: Tue, Dec 4th, 2018

7 Slip-ups To Avoid When Investing In Stocks

Avoid When Investing In Stocks

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Investing in the stock market can allow you to make huge returns – so long as you know what you’re doing. If you’re just getting started with stock trading, here are a few mistakes that you may want to look out for. By avoiding these mistakes, you can minimise the risk and costs, improving your returns.

 

Skipping the homework

Investing in stocks shouldn’t be treated like gambling. By doing your research, you can maximise your chances of investing your money in the right place. This could involve reading expert opinions, looking into history of the company you’re buying stocks from and reading the hard stats to come to your own conclusion. It is possible to use automated trading software that does most of the homework for you. Similarly, you can also hire the help of broker. Just make sure you’re not throwing your money at a stock just because it looks good on the surface.

 

Not considering your time frame


Looking to make your returns by a certain date? Perhaps you’re saving up money for your first property or putting the money towards retirement? Whatever the case, it’s important to calculate how long it will take to make your returns first. You don’t want to be waiting 20 years to make a return when you ideally wanted to make a return in five years.

 

Putting all your eggs in one basket

It’s best to invest your money in multiple stocks at once. If you invest all your money in one stock and that stock suddenly plummets in value without warning, you could end up suffering a big loss. However, if you divide up your money amongst multiple stocks, you can still make a profit from the other stocks if one goes sour. This is known as diversifying and is how the most successful stock investors choose to invest.

 

Using too much margin

Margin is money borrowed from a broker to invest with. If you can, you should avoid buying on margin at all – you’re essentially investing with money that’s not yours. The same goes for investing money that you borrowed through a loan. If your investment doesn’t work out, you could end up with a big debt that you took out for no reason.  

 

Capping losses too late

If a stock you bought starts to fall in value, it’s best to try selling as soon as possible. Many rookie investors try to cling onto these stocks in the hope that they’ll eventually rise in value again, but some can end up simply continuing to plummet leading to greater losses. Try to cap your losses as soon as the value starts to drop – catch it early enough and you may not even make a loss.

 

Overlooking the additional fees

For those investing using a broker or automated trading software, you’re usually required to pay fees. A lot of people get caught out by these fees and can end up making less of a profit overall as a result. Try to budget in these fees so that you know exactly how much you’re spending.

 

Forgetting about tax

Once you start making big profits, it’s important to realise that these profits are taxable. Failing to pay tax on profits made from investing in stocks could get you in legal trouble with the taxman – which could result in hefty fines. Keep a record of your profits and pay your taxes to avoid this.

 

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