Why do we invest? This question came to mind as I spoke with a friend over the weekend. Unfortunately he is currently out of work. Having worked for the same company for the last 15 years, he was suddenly made redundant. Redundancy is nothing new. I am sure many people reading this have gone through a similar fate. But as I apologised for his situation (although it was no fault of mine), it was his reply that resonated with me. “It’s OK. I’m alright for now until my funds run out”. His only source of income was his job and now that this has gone, he has no further income until he gets another job. His level of financial independence is only a matter of months.
This is just ONE of the reasons why we invest. Creating a passive income allows you to build a system for making money without working for it. If your job is your only support system, what happens when it’s unexpectedly taken from you? There’s still all your outgoings but no income. As one of the greatest investors, Warren Buffet once said, plant a seed today to reap the rewards of tomorrow. So why do we invest? To avoid that feeling of stress and pressure when your money runs out. To prevent that anxious feeling when you are fighting to find your next job. It’s a shame they don’t teach these things at school. Relying on just your job for your income……well it’s like putting all your eggs in one basket. But not the kind you usually associate with investing.
Of the mistakes made by investors, several of them are repeat offenses. The same mistakes being made over and over. After a few alarming prospective client calls recently, it reinforced our opinion that these types of mistakes need to be eradicated by investors.
1 Not listening
Now be honest investors. Have you ever had someone explain something to you but you have already switched off. You’re not listening for whatever reason? Investors are looking for the best investment opportunities but if you don’t listen to the explanation then how can you know from just a headline? Experience has taught me that sometimes you gain more from listening than you do from speaking.
2 Unreasonable expectations
Looking for the highest rate of return as the main reason for investing is maybe not the best starting point. What is your reason for selecting an investment after all? Understanding the structure or business model? Looking at what conditions could affect the investment? Prefer something offering a lower risk or a form of security in the event that something could go wrong to give you more comfort? Having a reasonable outlook may help you when looking for something that suits you. This leads me to point 3!
3 Understanding your own profile
Do you know how much you can afford to invest? Are you a speculative investor or do you prefer a low risk investment? Understanding yourself is a good point to start when you plan to invest. If you know what you are looking for it’s harder for someone to sway you in a different direction. A very wise man always said if you don’t know what you’re doing then why are you doing it? Invest in yourself first as it’s the most important investment decision you could make.
4 Making emotional rather than informed decisions
Knowledge is power someone once told me and I tend to agree with this. I was always taught to learn from people that know more than me. Take their knowledge and feed my own. So if someone understands an investment product, has been trained or has relevant information not on the brochure, it’s more likely to benefit an investor to take in this information so that an informed decision can be made rather than emotional one.
5 Taking responsibility
It’s your investment choice so be responsible. It’s your own capital so before you invest it, make sure you understand what is being presented to you. If you don’t understand then ask the question. Maybe you want to meet up with company. Is a telephone call enough for you? Everyone is different but taking responsibility could eradicate some of the common mistakes in investing. Investors who recognise and eradicate these common mistakes give themselves a greater chance of meeting their investment goals and being profitable and successful. Isn’t that the reason you invest?