There are plenty of mistakes that you can make when it comes to investing. I tend to group them into two main categories: fundamental and technical.
So, what are the fundamental mistakes that investors make?
Before I can answer this question, let’s take a step back to establish why people invest in the first place. They’re looking for an investment to return capital growth, income, or a combination of the two.
Growth assets appreciate in value over time. These include property, shares, rare metals, art, and collectibles. In contrast, income-producing investments focus on cash-on-cash returns. For example, term investments, government bonds, and corporate bonds.
Then there are investments that can produce both growth and income, such as certain properties and shares.
Now to answer the question…
The 3 Biggest Fundamental Mistakes
- They don’t know why they’re investing
Many investors enter the market throwing their hard-earned dollars into one investment or another without asking why. They don’t clearly identify their purpose for investing. Is it just to have enough money so they can survive in retirement? Or are they looking to leave a lasting legacy for their family? Or it is to create an enduring charity?
Whatever your reasons are for investing, have a clear understanding of them. This will help you stay focused and make better investment choices.
- No clear plan
Many investors fail to take the time upfront to create their investment blueprint. That is, they do not have a clearly-defined pathway mapping out the exact strategies they intend to follow. This type of investor typically jumps from one thing to another without a clear investment plan. Sometimes they might get lucky…and sometimes they just might lose everything.
To succeed as an investor, you need a plan. Once you know why you’re investing, you’ll be able to create a roadmap to get to your goal.
- Not fully understanding their investment
Unfortunately, many investors fall into investments based on the promise of quick riches. They may have a referral from friends or family, or maybe they read something on the internet that claims to be the next big thing.
Often they don’t understand the investment and simply get swept up in the hype or sentiment around this investment. Bitcoin and other digital currencies are a recent example of an investment class where many don’t understand the fundamentals.
No matter what you choose to invest in, make sure you understand it through and through. There’s no need to get a PhD. in the subject. But you must understand the essential concepts of each core aspect of the investment. This will lead to smarter investing decisions — and higher returns.
The 3 Biggest Technical Mistakes
- The cart before the horse
People often focus solely on the technical details of a property, such as the location, historical growth rates, yields, or proximity to schools, shops and transport. This is of course important information to gather and understand — but only after you decide to use property to generate your wealth results.
In other words, are you even going to incorporate property into your wealth mix? If the answer is yes, how will this property fit in with your overall wealth strategy? Are you investing for capital growth, rental yield, or value-added strategies such as renovation, subdivision or development?
Only once we identify the strategies do we move into the technical analysis of a property.
- Misunderstanding the investment cycle
Some erroneously believe that all property is going to continually increase in value. Property, like any asset class, goes through periods of growth, periods of flatness and periods of decline. The skill of an investor lies in knowing which stage a property market is in and making investment decisions according to their plans and strategies at the right time for the market.
Unfortunately, many uneducated or undereducated investors will find themselves buying at the wrong time of the market cycle.
To avoid this, you need to study the history of the market on a global, national, and local scale to see the patterns. Only then will you see where the market is headed.
- No thorough analysis of the data
We don’t have time here to take a deep dive into all the data, information and research that investors need to review to earn their black belt in property research and technical analysis. Suffice it to say, many investors have a lower level of understanding than what they need to get the best results. The challenge is in making sense of all the data — and the often conflicting opinions when it comes to investing.
Being experienced investors and mentors of literally thousands of investors over the years, we’ve seen and made our fair share of mistakes. The choice for you as an investor is: do you want to continue to make the same largely avoidable mistakes yourself? Or are you looking to short-cut your learning experiences and fast-track your investment results by working with an experienced mentor and guide?