Especially beginners in the capital market are afraid of making mistakes with their investments. However, be aware that mistakes in investing, as in any other situation in life, are normal and even useful. You can learn from mistakes for future situations.
However, you do not have to make every mistake yourself. You can also learn from the mistakes of others. That’s why we have compiled the 6 most common investment mistakes for you and tell you how to avoid them.
1. Investing without a goal
At the beginning of every investment, investors should define with which investment goal they want to invest money in. Whether for wealth accumulation, retirement or to fulfill a wish, not every investment can achieve every goal. For example, investing in exclusively safe assets is not suitable for the goal of wealth accumulation.
The various investments differ in terms of risk, liquidity, and return (the magic triangle of investing).
Only with a defined goal can investors, therefore, choose the appropriate investments. This means that each new investment must also fit the investor’s investment objective.
2. Investing only in one asset class
Especially for risk minimization, it is important that investors spread their total assets across several investments in different asset classes. If they invest in only one asset, there is a high risk that investors will also lose their total assets if this asset suffers losses.
The principle of spreading capital across different asset classes is called diversification. Allocating 60% of your portfolio to bonds, 30% to real estate, and 10% to binary options trading, a high-yield investment strategy, is one of the best examples of the principle of diversification. Read the trading guides to stay informed on it and learn more detailed binary options trading strategies, which have grown in popularity recently.
3. Wanting to build up assets without risk
The risks of investing should not be underestimated. However, investors should also not expect to build assets only with safe assets. With investment options such as call money, fixed-term deposits, or savings accounts, investors do not take any risk, but in times of low-interest rates and an inflation rate of 1.1%, they cannot build up assets with these deposits alone.
For the investment goal of wealth accumulation, investors must also invest in high-opportunity and thus higher-risk investments such as stocks, ETFs, and ship investments. This is the only way to achieve a higher return.
4. Paying attention only to the recommendations of others
Investors should not rely exclusively on the advice of their friends or asset brokers, but should always inform themselves about the respective investment.
Agents and managers always pursue their own interests with their work. It is important that investors also purchase the respective investment from their own conviction and fully understand its risks and opportunities of it.
5. Not considering fees and taxes
Most investments incur costs such as subscription, custody, or transaction fees. For this reason, it is important to compare different offers.
In addition, investors should consider the taxation of investments. The final withholding tax (capital gains tax) is currently 25%. Solidarity surcharge and church tax are added to this.
Only one asset class is tax privileged: ship investments. These fall under tonnage taxation, which means that the tax payable is generally only less than 1% of the distributed profit.
Other fees that investors should be aware of are trading costs. These are incurred when buying and selling certain investments, such as stocks. The more often you buy and sell investments, the higher the costs will be as well.
6. Underestimating risks
With the exception of savings accounts, call money, and time deposits, every investment involves risks. Most high-opportunity assets, such as shares, funds, and ship investments, have the partial or total risk of loss of the capital invested; investors must take this into account with every investment. Investors can therefore lose their entire investment sum in the worst case. Therefore, one should not make the mistake of underestimating the risk of an investment.
Therefore, it makes sense for investors to keep reserve and liquid funds so that they do not lose their entire capital in the event of losses.