Avoid these three Financial Mistakes

Avoid these three Financial Mistakes

Written by R. A. Stewart

Building an investment portfolio is similar to building a relationship. It takes time and patience but over caution can be just as costly. A lot of tolerance is required because in finance and in life in general you do not always get your own way. Life has its own ups and it is during the downs that we show our true character. It is when our true colours come to the surface.

Human nature or emotion as it is can interfere with one’s better judgment. This applies to relationships and finance.

Here are the biggest mistakes made by investors.

Mistake number one-Greed

“If something is too good to be true then it almost certainly is,” but many people have fallen into this trap by investing in something which was offering above average returns. In doing so they completely ignored another rule in finance and that is to diversify. During the 2008 Global Financial Crisis many investors lost their entire life savings when various finance companies went under. Several people have their entire life savings invested in one company. Whatever has been reported about these companies it is up to investors to do their own due diligence and invest sensibly. Placing all of your eggs in one basket is certainly not investing sensibly. The key word for sensible investors is “diversify.” This minimizes risk. Two things to bear in mind is that when there is an opportunity for a capital gain as there is with shares, there is also the chance for a capital loss. The other thing to remember is that when you hear stories of someone who made a killing on the share market by placing all of their eggs in one basket, you seldom hear of individuals who tried the same thing and lost their money. Greed will eventually get the better of investors who thought they were smart enough to beat the market.

Mistake number two-Timidity

Playing it safe is risky. Being overcautious will mean that you miss out on opportunities which risk takers take advantage of. There is no suggestion that you should be reckless and ignore common sense precautions but in relationships you need to risk getting hurt in order to discover what you are looking for. As far as financial matters are concerned, you have to accept some level of risk but this is manageable by diversifying your portfolio. Managed Funds or Mutual Funds as they are also called is an excellent way for ordinary investors to get involved in the share market. In New Zealand, Kiwisaver, Sharesies, Kernel Wealth, Hatch, and Investnow are excellent platforms for ordinary investors to get involved in shares. If you are from the US you may want to look at Robinhood which operates in much the same way as Sharesies.

Mistake number three-Impatience

“It is time and not timing which is important in the share market,” is a cliche which is worth keeping in mind. Patience is a virtue and this is applicable to relationships and finances. Some people lack patience that they invest their money in abc shares then when their portfolio is stagnant they sell those and invest in def and sod’s law, the shares they sold at a lower price suddenly rises meaning they have missed out on any gains which would have recovered their losses. The share market is a long term gain. If you require the money in the short term then investing in shares may not be the right option. Bank deposit probably is but you have got to do your homework. 

It really is up to your own risk profile.

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The information here is of the opinion of the writer and may not be applicable to your personal circumstances.

Invest in sharesies here:

Sharesies makes it possible for anyone to get into buying and selling shares. It is an online share market platform where you have the option of purchasing shares in individual companies or in various funds (managed/mutual funds). You can even start with $5. This is a no brainer because it gives investors young and not so young the chance to improve their financial literacy. There is certainly no substitute for experience when it comes to learning and this is applicable to everything else, not just investing.

Join sharesies here: https://sharesies.nz/r/377DFM

Disclaimer: I may receive a small sign up bonus if you join sharesies.

www.robertastewart.com

USING YOUR DISCRETIONARY INCOME

Making the most of your discretionary income

Discretionary income is what you have left over after paying your fixed costs. It is yours to spend on whatever you choose.

But….

How you spend this money can make a difference to your financial situation, but before this we have to ascertain what is discretionary income.

Rent/rates

Car running expenses

Power

Debt

Groceries etc.

People who have an addiction of some kind will prioritise their spending so that the addiction is included among their fixed expenses.

Everyone as an adult has freedom of choice unless they have debts which means their freedom is being eroded away in relation to their level of debt.

The old Proverb, “The borrower is a slave to the lender,” sums it up.

We all have some control over most of our fixed expenses such as groceries and power;we can cut down on these but with items such as rates/rent are fixed but even then we can choose to live in a more modest apartment or downsize.

The excess to your expenses is called discretionary income.

Another way of increasing your disposable (discretionary) income is to increase your income by getting a part time job, getting a higher paying job, or selling stuff online.

Saving your discretionary spending for some greater purpose instead of frittering it away gives your life some meaning. Instead of just letting things happen you are making things happen. Many people in 10-20 years time wondered what happened.

There is a major difference between saving your money and investing it. Astute investors use their discretion to increase their wealth by investing in higher risk stocks and shares, gold, and cryptocurrency. There are enough online platforms where you are able to drip feed money into these things if you are still climbing up the investment ladder. 

If you are interested in investing in gold then check out the site below:

https://affiliates.goldco.com/l/1VRW1MU2Q/

The important thing to remember is that because you are using discretionary income you can fully afford to lose this money.

But then you may prefer to save for a holiday and tick off one or two items on your bucket list. The border closures will restrict your choice of places but here in New Zealand there are so many fantastic places to visit it is an opportunity to discover your own backyard. 

www.robertastewart.com

New Zealand has some of the world’s most stunning scenery.

Photo: Franz Josef Glacier