by As a general rule, investing in the stock market is a smart way to grow your wealth. However, it is important to understand how the stock market works and to have realistic expectations about the performance before you put all your hard-earned money in it you can lose everything.
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Here are some expensive, dangerous assumptions that you should not make when investing in the stock market.
Some investors wrongly believe that they can ‘timen’ the market, knowing when they have to get out of the market and when they have to get back on the market. However, there are so many factors that influence market fluctuations, so this is impossible to do with some accuracy.
“Although it can be tempting to wait for the ‘right time’ to invest, several studies have shown that investors trying to time the market tend to do much worse than a buy-and-hold investor who completely avoided market timing,” said Alex Michalthfront at Wealthfront.
“Buying low sounds in theory, and it is not surprising that so many investors think that they have to wait for the right time to get to the market,” he continued. “But the time in the market is one of the most powerful ways to increase your return because of the way compiled works. When you wait to invest, you specify time in the market and your return has less time to put together.”
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You can be tempted to invest in a share, simply because it gets a lot of buzz, but this is not necessarily a good strategy.
“One of the biggest assumptions that people make when they start investing is that a share should be a good investment if it is on the news or is talked about social media,” said Victor Wang, CEO of the investing platform Stockpile.
“Although it doesn’t hurt to invest a little of your money in a popular shares if you believe in it, popular does not always mean profitable,” he said. “Sometimes shares on social media can actually be too expensive, which can cause you to lose money in the long term.”
Before you invest in shares, do your own examination.
“Whatever you decide, even if that buys a fractional part of that cool electric car or AI company, make sure you diversify,” Wang said. “That means investing in a number of different things in different industries to reduce your risk. In this way, the other, if one industry hit, can keep your portfolio in balance.”
