When it comes to investing, a simple error or mistake can cause your portfolio to take a downturn for the worse.
One of the constants in the finance industry is that the financial landscape is always changing, So it’s necessary to work with an advisor or asset manager who has the expertise to react and adapt to any environment.
Here are some of the most common blunders.
- Not having a risk management strategy
You should always try to minimize your risks.
Hilton Capital Management is an asset management firm founded in 2001. They’re privately-held and manages roughly $1.6 billion in balanced and equity strategies.
The primary strategy at Hilton Capital Management is one of Tactical Income, which was created to give fixed income investors the opportunity to increase their potential returns, while not dramatically increasing their level of risk.
“It focuses on capital preservation with an emphasis on income generation,” says a spokesperson. The focus on risk management and capital preservations are the cornerstones of the company philosophy and they pride themselves on managing money in a responsible manner, with a long-term outlook.
Have a risk management strategy in place, such as not risking more than a certain percentage of your portfolio. Use tools such as stop losses in order to minimize your risk.
- Investing without understanding the investment
Sometimes, you will hear about new opportunities that seem very promising and it can be tempting to jump in while the price is still low.
You should never, however, jump blindly into an investment, regardless of what you see on social media or advisor newsletters.
Make sure that you understand the company you are investing in before you put in any of your own money. Is their business model sustainable? Is considerable growth realistic for this company? Are there any risk factors that make it likely that the company may lose revenue or go out of business? Look at a business from all aspects, both internal and external.
- Not being ahead of the curve
Identify the companies with a lot of potential–and don’t wait until it’s reached its peak.
This is something that’s especially prevalent among newer investors and investors who have not yet had a lot of experience.
Many people only join an opportunity once it has already become well known. They hear about it in the media, but by that time so many people have invested in it that the bulk of the potential growth has already been reached, and they end up losing money
It’s important to have reliable sources and do your own research so that you can identify companies with a lot of potential.
- Not Diversifying
The importance of a diversified portfolio for personal finance can not be overstated.
It is absolutely essential that you don’t put all of your assets into one basket. A diversified portfolio will come in handy when some of your stocks are causing you to lose money. It helps balance out your investments, lower your risks, and improve your chances of achieving more growth in the long run.
A Little Risk Can Be Good
While we mentioned that it is important to have a risk management strategy, you should also be wary of being too conservative and not taking any risks at all.
Investing, by definition, involves some level of risk. While you should aim to keep that risk as low as possible, not risking anything means that you will not achieve much growth and ROI.