Some men just want to watch their money burn
Face it men, money can ultimately decide the quality of life you want to live.
With that notion there comes a many common mistakes that you should avoid when investing your hard earned cash. Educating yourself on the basics will go a long way to helping you stay out of pocket or worse, out of home.
“Just because your parents made money in property doesn't mean you will.”
Here's how to get rich and stay rich.
Rookie Mistake #1: Not Setting Goals Before You Start
Before you even lay out any money, ask yourself these questions:
- What are you hoping to achieve?
- How long are you intending to hold the investment?
- What risks are you exposing yourself to? ( if you can't see any risks, alarm bells should sound)
If you're not thinking about the mechanics, the reasons and the potential outcomes, then you're not really investing, you're just gambling and hoping for the best.
Rookie Mistake #2: Listening To Others Rather Than Your Own Research
Don't just rely on investment advice from your parents or from BBQ chat with your friends.
Unless they're professional investment advisers (and you're paying them in that capacity), what they're telling you is only going to be based on their personal experience.
Just because your parents made money in property doesn't mean you will. We're living in a different property market than the one they first bought in 30-40 years ago.
Also be cautious of any “hot” stock tips that you receive from acquaintances. Everyone's appetite for risk, timeframe and goals are different, and this mate probably hasn't considered yours.
He certainly won't be there to help you recover if it doesn't work out. You also need to be aware of insider trading (and similar market-based crimes) that you'd be well advised to steer clear of.
Rookie Mistake #3: Ignoring The Finer Details
When dealing in the stock market, it's easy to fall victim to psychological biases and illogical and irrational behaviour.
Everyone knows you should “buy low, sell high”, but in reality fear and greed cause people to do the exact opposite. There's a whole field of study called Behavioural Finance that is dedicated to how people fail to make rational decisions.
For example, one dollar has the same value as any other one dollar, but people will be more averse to losing $5,000 that they have had to work to earn and save, rather than losing $5,000 that they have made in the stock market.
Even though they have the same value, people place more value on the earned $5,000, even when, rationally, they shouldn't. There are many really interesting biases that people fall prey to and being aware of them is the first step in avoiding them.
Do a little research on these biases and you might save yourself some heartache.
Rookie Mistake #4: Dodgy Investment Schemes
This may sound like a no-brainer but don't get sucked into investment schemes. If it sounds too good to be true, it probably is.
Whether it's day-trading, options-trading, CFD-trading, currency-trading… any seminar that promises you the lifestyle you've always dreamed of and guarantees you could be making millions via satellite on your yacht if you just complete their 6 week course for “one low fee” should be treated with a healthy dose of scepticism.
There is no system, no magic pill and no secret formula. It's all just sales tactics, marketing and preying on your emotions. If it was so lucrative, they wouldn't be trying to sell it to you to make their living.
Rookie Mistake #5: Trying To Save Money By Ignoring Professional Advice
Lastly, don't scrimp on professional advice. Could you tile a bathroom yourself and save money? Possibly, yes.
But you'll spend a lot of time trying to teach yourself how to tile, a lot of time buying materials and doing the actual job, and the quality you end up with will probably be mediocre.
A professional tiler has many hours of experience and can do the job quicker than you, easier than you and better than you. The same is true of investment professionals.
Yes you can DIY your financial future, but it doesn't necessarily give you the best possible chance of achieving your goals. Find a professional with a quality education, who has the systems and the resources behind them and who spends all day, every day managing money.
Align your interests with a quality practitioner who you trust and can develop a long standing relationship with and they will be your biggest asset.
Special thanks to Luke Laretive who is a Senior Private Wealth Adviser @ Shaw and Partners. This is general advice and you should consider it in light of your personal circumstances.