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The Top 5 Common Mistakes People Make When They Begin Investing in Stocks

April 24, 2012 | Comments: 0 | Views: 260

The common problem that many would-be stock investors encounter is that they do not know what to do when it comes to the stock market. They would often go in head first and before they realize that they are in over their heads they have lost their life savings.

To be a successful stock investor, you must learn to avoid common pitfalls that can lead to a disastrous portfolio. Here are the top 5 common mistakes beginners make when they start investing in stocks.

1. Having No Plan in Place - The stock market can be a useful avenue to build a little nest egg for your retirement. However, without a plan in place, you really do not know where things are headed. One needs to determine their goals and objectives, as well as their plan of action.

After you they are done planning, it does not just end there, either. They still need to revisit their initial plan and adjust your investment decisions and portfolio in accordance with those changes.

2. Investing Too Late - Many people make the mistake of thinking that they should only start a retirement plan when they are closing in on the last days of their professional life. As a result, they are unable to make use of their best asset, time.

One should start their retirement plan early to make the most of their earning potential. The additional time will also help them learn more and in the process earn more money in the stock market. After all, what is the worst thing that could happen when you start investing early? Money can be lost while the income is not high enough. But if you hit it big, you might even be able to retire early.

3. Basing Your Investment Decisions on the Media - As a beginner investing in the stock market, you need to get your information somewhere and the media is as good as any place to start. Should you be basing your investment decisions on this alone.

One needs to research each company they would like to invest in. An investor should know the company they are investing in from top to bottom before he or she makes a decision. When all the facts are in, it is easier to make an informed decision.

4. Panicking When the Stock market is down - The stock market is characterized by the ups and downs that it commonly goes through. Its relative volatility is why people make a lot of money in it. It is, however, very hard to hit the market perfect every single time, especially for beginners.

As such, people can sometime panic when the market is down and jump out of a position for a loss. Which is sad because in some cases all they had to do was wait for their positions to rebound and gain back it losses.

5. Putting All your Eggs in One Basket - The stock market is a high risk, high reward arena that can pay handsomely if you know what you are doing. If you are a beginner, it can lead to large losses if you are not careful. That is why, unless you are Warren Buffet, you should consider diversifying your portfolio.

Although diversification limits the upside of one's portfolio, it limits your risk exposure, as well. For beginners, a well balanced portfolio is key to their success because you can spread out earnings while learning more on the dynamics of the stock market.

When you do get the hang of market, you can zero in on the right stocks and increase your earning potential. In the meantime, it does not hurt to play it a little safe.

These are just some of the most common mistake neophyte stock investors get themselves into. There are still a ton of mistakes to make out there and it would take an article a hundred times longer than this to get through all of them.

Do not be discouraged, though. There is no perfect way to invest in the stock market and mistakes will likely happen. In fact, they are the perfect way to learn. However, if you are able to avoid the common mistakes people often make, you are instantly in a better position to make money in the stock market.

Theodore Espiritu writes about a wide range of subjects. To learn more about stock investing, visit

Source: EzineArticles
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