The COVID-19 pandemic has attracted a wave of new investors who may think investing is simple and the stock market is platform to get rich quickly. Some may have probably realised that the market is probably a bigger and way more complex animal than it appears to be as most portfolio get decimated under a rising interest rate environment in 2022.
With 2023 likely to another challenging year as recessionary fears starting to haunt investors, it is critical to know the common pitfalls and be prepared to avoid them.
1. Failing to diversify the portfolio
It is human nature to have favourite or preferred companies. Posts containing headers such as "How much you have earned if you invested $xxx in xxx stock" are plastered over social media, and also how many people amassed large amounts of wealth and became "Teslanaires" by focusing on $Tesla Motors(TSLA)$
Hence, it is imperative to diversify your investments to spread risk and reduce the impact of any one company performing poorly. This can be in the form of buying at least 15-20 compseis in various industries. Do note that buying an bunch of tech giants does not equate to Portfolio diversification! For those who do not have the time to do research on individual companies, ETFs such as $SPDR S&P 500 ETF Trust(SPY)$ and $Invesco QQQ Trust(QQQ)$ that mirror the index can be good choices for long term investments.
2. Being too emotional and not sticking to your game plan.
One can be easily swayed by the market volatility and get caught up in the excitement or fear of the market. Most retail investors would either FOMO and buy in at higher than intended prices at an enormous rally or panic sell at a loss in a stock market plunge.
Emotions can derail your game plan as losses get materialised or market reversals after a FOMO diminishes your purchasing ability. It is crucial to stay calm and stick to your plan instead of making impulsive decisions influenced by market emotions.
3. Being impatient
The stock market can be volatile as it does not move in a straight line. Unless you are trading, it is important to be patient with your investments as long as the companies continue to have strong fundamentals or exhibited good growth potential, such as Microsoft, Amazon etc.
What this means is not to make impulsive decisions based on short-term fluctuations. One should focus on longer term trends and wait for the right opportunities to buy.
As we usher in the year of rabbit, I wish all myTiger friends a year abundant of happiness, good wealth and prosperity! May all our portfolios hop to new highs and @Tiger_SG continue to achieve greater heights!
@TigerStars @CaptainTiger @Tiger_chat @MillionaireTiger @TigerEvents
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