3 Potential Pitfalls Facing Investors Who Are Investing For Retirement
Buying stocks is never an easy task.
While the internet has made it a simpler process, you need to be willing to put in the work to be able to generate high returns over the long term.
Making mistakes is also part and parcel of the learning process.
As such, we would like to highlight three common mistakes that investors persistently make.
By overcoming the following three potential pitfalls, it may be possible to boost your portfolio’s returns.
Buying during bull markets
The stock market is probably one of the few avenues where customers (investors) want to buy more of a product (stocks) the higher its price.
In other words, many investors tend to buy more stocks during a bull market, when the prospects for the company, industry and economy may not keep up with expectations.
Between buying more during bull or bear markets, the reality is that buying more stocks during bear markets is a much more logical approach to take.
One reason for this is that during a bull market, share prices are pushed up due to higher expectations.
They therefore often lack a margin of safety, and are prone to a sharp fall should expectations not be met.
Should this occur, it will dent your total returns or even incur you a capital loss.
However, do note that buying when stock prices are falling requires a strong stomach.
But history has shown that great, well-run companies always bounce back from declines over the long run.
Personal opinion
While it is difficult to be completely emotionless when buying stocks, it’s important to exclude personal opinions of a company when you invest your money.
You may have had a bad experience with a company from a customer perspective, or may not be impressed by the product or service being sold by a particular business.
However, this does not mean that the stock is a poor investment.
Other customers may have positive experiences, while the company’s product or service offering may be targeted for different demographics, which is why it does not appeal to you.
If an investor is able to focus on the facts and remain impartial about stocks, they could generate higher long-term returns.
Observe the numbers, financial ratios and industry growth to get an objective picture of what’s happening with the company and the sector it is in.
While this may be a difficult undertaking for some investors, doing so will prove to be a shrewd move that can net you consistent returns.
Research
The internet has made researching stocks far easier than it ever has been.
Investors now have a wealth of free information available to them through which to make investment decisions.
These range from corporate updates to periodic earnings releases that investors can tap on to check not just the health of the company, but also its corporate plans and growth strategies.
Still, many investors fail to check the fundamentals of a business before buying it.
Even a relatively small amount of time spent focusing on areas such as debt levels, cash flow, valuation and the strategy being adopted by the company could lead to a more informed investment decision.
It may also help them to avoid companies that may have an interesting story attached to them but are ultimately classified as having higher risks.
Such stocks have a poor risk-reward ratio and could result in potential losses over time.
By spending more time researching stocks, remaining objective and buying during bear markets, an investor could boost their portfolio returns in the long run.
Get Smart: Being aware is a great first step
Being aware of these pitfalls is already a great first step to take on your investment journey.
You can then go about ensuring that you do not get caught up in these traps that could derail your retirement plan.
Once you overcome these hurdles, you will be in a better position to successfully build a robust retirement investment portfolio.
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Disclaimer: Royston Yang does not own any of the companies mentioned.
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