The idea of investing in stocks is quite attractive to many people wanting to try to make money for retirement or other major lifestyle goals. Many people start investing in stocks and expect that they will get a great return on their money. There is a big misconception that people that choose to invest will get rich over time. This is especially true of the people that hire professional investment advisors. They feel like not much can go wrong and don’t take into consideration the drawback and pitfalls of investing in stock. There is much more to making money in stocks than most people consider before investing.
Before investing be sure that you are well informed and understand the risks and drawbacks associated with stocks. Too many unfortunate individuals get caught up in unexpected occurrences and red tape without any idea what to do about it. These following pointers can help you understand the possible negative occurrences that can happen when investing in stock before you find yourself in a tumultuous experience.
1. Returns Are Not Guaranteed
Many like to think that they can simply buy stock and see a profitable return on that investment. This is not true. If invested wisely it is entirely possible that you could see returns but never assume that you are guaranteed to make money when you select stock to purchase. This is the most important point to wrap your head around before you get started. Knowing this and keeping it mind will help you to keep yourself from making costly mistakes.
2. It Is Possible To Lose Your Entire Investment
It is not something that you are going to enjoy thinking about, but you must take into consideration that you may very well lose your entire investment in the event the company has a catastrophic collapse. It is not something that happens regularly, but it happens enough to warrant caution. Know that this can happen. Do not invest more money than you are willing to lose. Never spend all of your savings hoping to make money. You can aspire to make money, but sometimes it just won’t happen. If you are not willing to part with your hard earned money, then consider that there are other ways to invest besides stocks. You might consider limiting the amount you invest so that if something happens that causes sweeping losses you will not be left with nothing to show for your trouble.
3. Penny Stocks Are Not A Sure Fire Investment
People everywhere are buzzing about penny stocks. There are a few individuals that have made fortunes from investing in these highly unstable stocks. They can sell for extremely low prices but in the long run, you may not accomplish anything by buying them. In fact, you stand to lose all of your money because many of the companies are new to the stock market and in some cases end up having huge losses or crumble altogether. Penny stocks are a risk. They might be fun to watch but never count on getting your money back. Treat them as you would treat the money that you bring to the casino to gamble with. These stock are a gamble, and the big winners are few and far between.
4. There Are Plenty Of Scams Out There
It is unfortunate, but it is a fact that scammers are out there. The stock market is famous for past scandals involving illegal and illicit trading activity. There have been very high profile cases involving prominent traders and their affiliates that have sent shock waves through Wall Street. Be sure to use a financial advisor that is knowledgeable and has a good reputation. Just be careful because even those with impeccable careers have been caught scamming the unsuspecting. Be sure to do your homework when considering paying to have someone invest on your behalf or getting any financial advice. You want to make sure that they have the proper credentials and good feedback from their clients.
5. Many Investors Do Not Have As Much Insight As They Claim
Many people claim they know the market and end up failing miserably. Confidence is good but being overly confident can cost you big bucks. If you are unsure about something, then don’t try to act like you know what you are getting into. Sometimes it is best to fall back and further analyze companies and their financial situations before you take any steps towards investing in their company. Some people that are new to stocks will claim to be knowledgeable and will give advice that can get you in trouble.
6. The Market Can and will Be Volatile
This is something that most people understand going into investing in stocks. Even though people know this they don’t take that information seriously. Investing recklessly can have disastrous results. It is better to be cautious and make the most informed decisions you can. Even when you are careful, there is still a good bit of risk involved. Always remember that the unexpected can and eventually will happen. Be prepared for negative results along the way. It can be quite helpful to find someone that is well informed about the current market to help you navigate your way through the tough spots.
7. You Can Lose Money Even If You Are Knowledgeable
Even the best investors and advisors can make bad decisions. Being knowledgeable is not the only factor in the investment world. Sometimes having substantial positive returns requires good timing and a great deal of luck. Remember, even the best of investors are right barely more than half the time. But that’s all it takes. Just remember all the research in the world can’t prevent a stock from going down.
8. You Can’t Control Or Predict Crashes
Some people that have been in the business for a while try their hand at predictions. Occasionally some of the predictions are spot on, but that should not be considered sound investment advice. Predictions should be taken into account because they can outline some of the possibilities surrounding the stability of stocks. The best advice when a market crashes is not to panic. Remember that long term a crash shouldn’t affect your long term investment approach which should be to make money over time, not just one event.
9. Investing Takes Discipline
Some new to investing in stocks get overly eager and wind up investing too much money in the wrong companies. You have to restrain yourself even when you are on a roll. Investing in stocks takes careful planning and observation. Try to keep activity steady and well planned. Discipline means having a well thought out plan and the patience to execute it. Are you in it for the long term? Then stick to your long term strategy.
10. You Won’t Be Able To Invest Wisely All Of The Time
No matter how careful you are sometimes, you are going to find a dud. This is just part of buying stocks. Learn from your mistakes and try to figure out which types of investments to avoid. Roll with the punches and eventually your diligence will pay off and sometimes it can be in a big way. The more you accept that investing is gambling (albeit calculated gambling) the better you’ll feel when you experience a loss.
11. You Can’t Plan Your Retirement Based On Your Stock Investment
If you are going to create a successful retirement portfolio, then you can not solely rely on buying stock. If you are planning for your retirement, you need to be able to add layers of stability by diversifying. You can’t put all of your eggs in one basket. To do so is asking to retire broke and with no hope of leaving money for loved ones when you pass. Remember things like insurance, real estate, annuities and other sources of fixed income.
12. Even If You Do Create Returns They May Not Be Much
Returns can trickle in slowly. This can add up to not much money over a long course of time. Don’t get your hopes too high for large amounts of money to roll in. As long as you are getting some money from your investment, then you may consider letting it trickle in slowly. You might choose to invest in a better company, but it is a good idea to consult a professional advisor before you make a move.
13. You Can Go From Up To Down In An Instant
Market fluctuations are something that needs to be anticipated. Don’t let ups and downs spook you. It is normal to have occasional slumps. It is important to remain calm and ride out the occasional turbulence. Selling at the first dip is a rookie mistake. There may be times where it is critical to selling your stock but only in cases where it is imminent that you will lose a substantial amount of your investment or if the company is about to fold.
14. All Stock Investments Are A Gamble
The stock market is one big gamble. Many factors go into how a company performs and your profit potential rests on their longevity and overall success. Sometimes businesses make critical errors and stocks will plummet. You can invest in a business that seems to have all the right things going for them and then without warning something can happen such as a scandal or legal issues, and stock values can drop quickly and leave you reeling.
15. You May End Up Paying Good Money For Bad Advice
Sometimes you will get bad advice from professionals that are getting paid big bucks for their input. That doesn’t mean that they are trying to make you fail it means that they thought they knew what they were doing and didn’t. Remember that most professionals are in the business of making money from commissions and are trying to sell you advice. They may be smart but they are still selling.
16. Slumps Can Last Long Periods Of Time
Unfortunately, the slump that you thought would only be short live can end up being long term. In these cases, you may be better off in the long run selling your stock and investing in a company that has been seeing better returns over the course of time. Determine your criteria for holding onto a stock and stick to it, no matter what it is. The further down a stock price goes, the harder it will be to get back to it’s original number let alone be profitable.
17. You Need To Invest In A Variety Of Industries
This is important for the same reason diversifying is so important. Some industries will be performing well when others are not. This help to balance out your financial investment. This will give stability and will help keep your overall losses to a minimum. In general it’s said to pick 5-7 different sectors for a portfolio that way you are spread across all industries. Though a general index fund can do the trick.
18. You Can Never Have All Of Your Bases Covered
No matter how careful your strategy and how accurate the investment advice you get is, you may risk significant losses. It is wise to be prepared for this. Consider investing in other less risky ventures in case the worst happens. There is no sure-fire strategy in stock. Careful planning will be your best bet, but you will need other factors to play out in your favor that you do not have any control over. You will always stand to take a hit in the pocket when you invest in stock.
19. There Is No Protection From Losses
There is no way to protect yourself from losses. Losses are part of stock investing. There is always degrees of risk involved with putting your money into stocks. If you want to add some layer of protection you may want to invest in long running companies that have always had a reputation for producing returns. It is important to know that even this strategy can be risky. Any business is capable of significant declines in stock value if the right conditions present themselves. The same is true of gains.
20. Growth May Take A Long Time
You should take into account the long term when buying stock. Consider the fact that you may not see great yearly returns but it will add up over time if the company is a solid performer. Most experts will tell you that you should be in the market for the long haul and to not get in too much of a hurry because that may cause you to make mistakes that you will later regret. Plan for the long haul if you are serious about creating positive returns.